Guidance to prepare directors facing the risk of M&A litigation

Chubb Group of Insurance Companies has released a new loss prevention guide meant to help directors and officers prepare for litigation if their firm engages in a merger or acquisition (M&A).

“Merger and acquisition activity is up, and many companies and their directors and officers are being sued as a result of these transactions,” Evan Rosenberg, senior vice president and global specialty lines manager for Chubb, said following the release of Director Liability Loss Prevention in Mergers and Acquisitions.

Rosenberg acknowledges that while it is impossible to prevent a lawsuit from being filed, directors may be able to increase their defensibility by following best corporate governance practices.

Recommendations in the 21-page guide, written by Dan A. Bailey, an attorney with Bailey Cavalieri LLC in Columbus, Ohio, include the following:

• directors should have up-to-date strategic plans and long-term corporate strategies that will help them respond to a takeover offer and may serve as a valuable defence if the offer is rejected;
• when responding to a takeover proposal, directors should create a record demonstrating that they carefully and thoroughly considered relevant information regarding the proposed transaction; and
• directors should obtain advice from independent experts with substantive experience in M&A, who are disinterested in the deal’s success or failure and whose compensation should be outcome neutral.

In Canada, Aon Risk Solutions recently reported the insurance industry could see more merger and acquisition activity in 2013, partly because of continuing low investment returns.

The current low interest rate environment, which looks like it will continue at least in the short term, means insurers must find “better ways to invest and deploy capital,” which could lead to more M&A activity this year, states Aon’s Canadian Insurance Market Report. That said, the report notes there is still significant competition among insurers.

With last year moderately low level of natural catastrophes, Aon adds that the Canadian market has strong capital levels.