February 7, 2003 by Canadian Underwriter
The insurance industry is being called on to stand up against “egregious” class action securities lawsuits to avoid erosion of the troubled directors and officers (D&O) market. Speaking to members of the U.S. Professional Liability Underwriting Society (PLUS), Chubb vice chairman John Degnan asked the industry to establish the “Institute for Securities Class Action Defense”, to help “confront and reverse a very troubling pattern of abusive, outrageously aggressive and, in some cases, downright dishonest conduct on the part of the plaintiffs’ bar in class action securities litigation”.
He says the action of the bar are often about self-interest, cloaked in “the robes of protectors of the public’s interest”. The result has been rising D&O loss costs and therefore higher premiums, but these short-term market corrections are outweighed by long-term concerns. “For those of us who want to be in this business for the long haul, there needs to be a focus on bringing costs down and ensuring that rates are reasonable so that the coverages we provide continue to represent a rational buying decision.” He fears a return to the market of the mid-1980s when the withdrawal of the casualty market spawned the rise of the Bermuda market. “Make no mistake: Our insurer companies and their directors and officers will find over time an efficient mechanism for transferring risk.”
His vision for an industry-funded institute includes as an information repository, to submit amicus briefs on issues impacting securities litigation, and as a means of considering reinsurance or capital market solutions to reduce insurers’ and insureds’ risk.
His speech comes on the heels of American International Group (AIG) announcing it would take a reserve charge of US$1.8 billion on its fourth quarter 2002 results, including 25% going to bolster D&O reserves.