March 29, 2021

Exclusive Forum Bylaws: Stabilizing D&O Rates?

Last year, in Sciabacucchi v. Salzberg, (Del. 3/20), the Delaware Supreme Court held that a Delaware corporation could adopt a federal forum bylaw compelling shareholders to bring Securities Act claims only in federal court.  Plaintiffs prefer the more liberal pleading standards that apply to these claims in state courts, and prior to Sciabacucchi, those courts have become increasing popular venues for Securities Act claims.  This recent article from Alison Frankel suggests that Sciabacucchi has reversed those trends – and that the move to federal court has had a favorable impact on the D&O insurance market in recent months:

Data from Cornerstone and Woodruff Sawyer show that state-court Section 11 filings have declined since the Delaware Supreme Court’s Sciabacucchi decision. According to Cornerstone, of the 24 Section 11 suits filed after Sciabacucchi, 14 were filed only in federal court, reversing the trend of more Section 11 class actions being filed in state court. Woodruff Sawyer data indicated that only 8% of cases in 2020 were filed in state court alone – down from 24% in 2019. In 2019, according to Woodruff, plaintiffs filed only 16% of their Section 11 cases in federal court alone. That number rose to 42% in 2020.

The article quotes Woodruff Sawyer’s Priya Huskins as saying that there is a “straight line” from reduced state court IPO litigation to a “newly stable” D&O insurance market – and that the D&O insurance market might have even been better but for the demand from SPAC IPOs.

John Jenkins