The Critical Role of Defense Counsel in Securities Class Actions
Securities class actions are a significant concern for U.S. public companies of all sizes. When a company and its directors and officers face securities fraud allegations, selecting the appropriate defense counsel is crucial. The securities defense bar is a specialized subset of U.S. law firms, making the choice of the right firm and attorney challenging.
Berkshire Hathaway Specialty Insurance (BHSI) has developed a solution to this problem. The company maintains a list of securities defense firms that it believes provide top-notch defense in this critical area. Moreover, BHSI’s ‘Preferred Counsel’ program offers insureds unique financial and other incentives in the D&O marketplace.
The Rise of Securities Class Actions
In 2024, there were 220 ‘core’ securities class actions filed, alleging violations such as 10b5 and section 11. This represents a slight increase from 209 filings in 2023. The claimed damages rose by 23% in 2024, with 27 lawsuits alleging damages exceeding $5 billion. Settlements followed this trend, typically ranging between $30 million and $40 million. Ten securities class actions settled for $100 million or more, with the total value of all settlements in 2024 surpassing $6 billion.
William Carroll, SVP Public Commercial Insurance and D&O Product Lead at BHSI, explained that the firm’s Preferred Counsel Program, launched in June 2024, offers 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 faced by BHSI’s customers.
Key Objectives of Defense Counsel
The primary goal for defense attorneys in securities class actions is to defeat the case at the pleadings stage on a motion to dismiss. However, Peter L. Critchell, VP Public Commercial and Financial Institutions and Technical Claims Lead, noted that roughly half of all securities class actions survive this motion and enter the costly discovery phase.
BHSI’s preferred counsel endorsement includes several industry-leading financial incentives. The first is an immediate reduction in the self-insured retention amount, typically 25%. A second retention reduction feature is triggered if the defendants do not prevail on the motion to dismiss, offering up to 100% of the remaining SIR amount.
Benefits of the Program
The program has proven successful, with BHSI growing its primary public D&O portfolio by over 20% since its rollout. The endorsement is available for all insureds for whom BHSI provides primary insurance, allowing them to choose a law firm from the preferred counsel list or not.
BHSI believes its market-leading endorsement benefits its insureds, preferred counsel firms, and the company itself. Building strong relationships with law firms is a key feature of the program, smoothing the process for clients, especially during settlement discussions.
To learn more about BHSI’s Preferred Counsel Program, visit: https://www.bhspecialty.com/.
