The Critical Role of Defense Counsel in Securities Class Actions
Securities class actions are a significant risk for U.S. public companies of all sizes. When a company and its directors and officers are sued for securities fraud, finding the right defense counsel is crucial. The securities defense bar is a specialized subset of U.S. law firms, making the selection process challenging.
Berkshire Hathaway Specialty Insurance (BHSI) has developed a solution to this problem. In 2024, there were 220 ‘core’ securities class actions filed, alleging violations such as 10b5 and section 11. Claimed damages rose by 23 percent, with 27 lawsuits alleging damages over $5 billion. Settlements followed this trend, with typical settlements ranging between $30 million and $40 million. Ten securities class actions settled for $100 million or more, totaling over $6 billion in 2024.
BHSI’s Preferred Counsel Program
In June 2024, BHSI launched its Preferred Counsel Program, offering 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,” said William Carroll, SVP Public Commercial Insurance and D&O Product Lead at BHSI.
The primary goal for defense attorneys in securities class actions is to defeat the case at the pleadings stage on motion to dismiss. However, roughly half of all securities class actions survive this motion and enter the costly discovery phase. BHSI’s preferred counsel list includes firms that consistently demonstrate success both at the pleadings stage and beyond.
Key Features of BHSI’s Preferred Counsel Endorsement
BHSI’s preferred counsel endorsement offers several industry-leading financial incentives. The first is an immediate reduction in the self-insured retention amount, typically 25 percent, applied at the beginning of the claim. The second financial incentive is triggered if the defendants do not prevail on the motion to dismiss, offering an additional reduction of up to 100 percent of the remaining self-insured retention amount.
“We are essentially putting our money where our mouth is,” Carroll explained. The true economic benefit for clients can range from a few hundred thousand dollars to millions. The endorsement allows insureds to choose from a list of pre-vetted law firms, providing flexibility and confidence in the legal representation.
Benefits for All Parties
BHSI considers its Preferred Counsel Program a source of mutual benefit for insureds, preferred counsel firms, and BHSI itself. The program has already shown significant success, with BHSI growing its primary public D&O portfolio by over 20 percent since its implementation.
By building strong relationships with law firms and involving them early in the process, BHSI aims to provide its customers with the highest quality legal representation in securities class actions. As Peter L. Critchell, VP Public Commercial and Financial Institutions and Technical Claims Lead, noted, “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.”
To learn more about BHSI’s Preferred Counsel Program, visit https://www.bhspecialty.com/.
