Securities class actions are an unfortunate fact of life for U.S. public companies large and small. When a company and their directors and officers are sued for securities fraud, finding the right defense counsel is mission critical. The securities defense bar is a small subset of all U.S. law firms, but choosing the right firm, and the right attorney within the right firm, remains a daunting task.

How can the directors and officers named as defendants in a securities class action get it right?

Berkshire Hathaway Specialty Insurance (BHSI) believes it has an answer. BHSI maintains a list of securities defense firms that, in its view, provide the best defense in this crucial area. But their “Preferred Counsel” program goes even further, offering insureds several financial and other incentives unique in the D&O marketplace.

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In 2024, there were 220 “core” securities class actions filed (i.e., alleging 10b5 and section 11 violations), as compared with 209 filings in 2023. Claimed damages rose by 23 percent last year, with 27 lawsuits alleging damages of over $5 billion. Likewise, settlement numbers followed this trend, with typical settlements ranging between $30 million and $40 million. Ten securities class actions settled for $100 million or more, and the total value of all settlements in 2024 was over $6 billion. In addition to traditional securities class actions, “mega” shareholder derivative cases continue to rise, with many of them settling at $100 million or more.

With alleged damages in securities claims frequently in the billions, even for medium and smaller sized public companies, trying a securities class action becomes a “bet the company” proposition.

Given such exposure, and the cost and complexity of litigating these cases, defending a securities class action calls for the very best legal representation. That is where BHSI aims to help its customers navigate this important decision.

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William Carroll, SVP Public Commercial Insurance and D&O Product Lead, BHSI

In June 2024, BHSI launched its Preferred Counsel Program, which offers insureds financial and other benefits for working with one of 25 carefully vetted law firms.

“These firms have demonstrated a deep understanding of securities class actions and the unique challenges our customers face,” William Carroll, SVP public commercial insurance and D&O product lead for BHSI, said. “BHSI can ensure that our policyholders receive the highest quality legal representation when they need it most.”

With trial a rarity, and looming discovery costs risking depletion of D&O insurance proceeds, job number one for the defense attorney in a securities class action is defeating the case at the pleadings stage on motion to dismiss. “Our goal is to have the best attorney on each particular case that provides the client with the highest probability of getting a suit dismissed at pleading stage,” said Carroll.

As Peter L. Critchell, VP public commercial and financial institutions and technical claims lead, points out, however, roughly half of all securities class actions survive a motion to dismiss and move into the discovery phase – a costly, time-consuming and perilous journey offering few rewards for the defense. All securities defense firms advertise their success at getting cases dismissed, and all are ostensibly prepared to go to trial. In BHSI’s view, however, the number of firms that consistently demonstrate success, both at the pleadings stage and beyond, is surprisingly small. “These cases need to be handled by counsel with the highest levels of expertise,” Critchell said.

The firms on BHSI’s preferred counsel list are selected for a combination of legal firepower and commercial practicality. As Critchell said, “They are all fierce litigators who also know how to run a case effectively and efficiently, with an eye toward the eventual resolution – including negotiating with the top plaintiffs firms, all of whom are tough litigators in their own right.”

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Peter L. Critchell, VP Public Commercial and Financial Institutions and Technical Claims Lead, BHSI

BHSI’s preferred counsel endorsement is aimed at steering their customers to the “best of the best” securities litigation defense firms. To serve this end, the endorsement contains a number of industry-leading financial and other incentives, available in the event the insured chooses counsel from the preferred list.

The first financial incentive is an immediate reduction in the amount of the self-insured retention. The reduction is based on an agreed percentage of the retention amount – typically 25 percent – and is applied at the beginning of the claim.

The second financial incentive, also a retention reduction feature, is triggered when and if the defendants do not prevail on the motion to dismiss. At that juncture, with the case proceeding toward the costly territory of discovery and potential settlement, BHSI’s endorsement offers an additional reduction of up to 100 percent of the amount remaining in the SIR – a feature that is unique in the D&O marketplace.

“We are essentially putting our money where our mouth is,” Carroll said. “The true economic benefit for the client can range from a few hundred thousand dollars to millions.”

But the benefits BHSI’s endorsement provides do not end there. The endorsement is available for all insureds for whom BHSI provides primary insurance and allows them the freedom to choose a law firm from the preferred counsel list – or not. Also, BHSI’s customers are free to use all the firms in any jurisdiction in which securities litigation is filed in the United States. BHSI believes all the firms on its preferred counsel list are competent to litigate cases anywhere in the country.

The program has proved an immediate success. Carroll reports that the insurer has been able to grow its primary public D&O portfolio by over 20 percent since rolling out the program last year.

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Finally, BHSI considers its market-leading endorsement a source of mutual benefit for its insureds, for its preferred counsel firms, and for BHSI itself.

Building strong relationships with law firms is a key feature of the program from BHSI’s perspective. This benefits the firm’s clients who are, after all, also BHSI’s customers. “A strong bond between the insurer and legal counsel is especially important in securities litigation,” said Critchell. “In part because we as claims professionals add real value to the process, particularly once settlement discussions commence. Firms that recognize this smooth the entire process for their clients.”

Carroll weighed in: “As underwriters, we work hand in hand with our claims teams in assessing the risks of securities litigation for our customers, and we consider our claims professionals a major value add. The law firms in our program understand this and actively partner with us.”

Building relationships on the claim side, getting the right firms on the preferred counsel program, and involving BHSI early in conversations about the choice of defense firm is crucial. As Critchell explained, “Having relationships with these law firms that extend through the life of the claim and beyond, is important both on the claims and underwriting side. When issues arise, we’re comfortable communicating with each other.”

“While we can’t guarantee outcomes, our familiarity and experience with these attorneys provides a level of comfort and confidence in the legal process,” Carroll concluded.

To learn more, visit: https://www.bhspecialty.com/.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, health care professional liability, executive and professional lines, transactional liability, surety, marine, travel, programs, accident and health, medical stop loss, homeowners, and multinational insurance. The actual and final terms of coverage for all product lines may vary. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has offices in Atlanta, Boston, Chicago, Columbia, Dallas, Houston, Indianapolis, Irvine, Los Angeles, New York, Plymouth Meeting, San Francisco, San Ramon, Seattle, Stevens Point, Adelaide, Auckland, Barcelona, Brisbane, Brussels, Calgary, Cologne, Dubai, Dublin, Frankfurt, Hong Kong, Kuala Lumpur, London, Lyon, Macau, Madrid, Manchester, Melbourne, Munich, Paris, Perth, Singapore, Sydney, Toronto and Zurich. For more information, contact [email protected].

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.