US Securities Class Actions - Q1 2019
Class action filings against companies headquartered outside the US continued at elevated levels in the first half of 2019. This article is a follow up on our 2019 Q1 review on class action trends.
A New Normal for International Companies?
The steep increase in US securities class actions filed against companies based outside the US that started in 2016 shows no sign of slowing down. Overall, there were 14 securities class action filings against international companies in the second quarter, following on from 18 in the first quarter of 2019. Excluding M&A suits and focussing only on the most concerning core filings,[1] for the first half of 2019 there were 29 core filings against non-US companies. This figure is more than double the 20 year average of 12 core filings at half year, and is nearly equal to the entire years’ worth of core filings in 2014 (30) and 2015 (34). It represents a worrying increase over the historic averages. If the current elevated level of filings were to continue through the second half of 2019, it would project to a total of 64 class actions this year, and 58 core filings. According to Cornerstone Research’s 2019 Midyear Assessment of securities class action filings[2], that would be the highest number of core filings against non-US companies on record.
European Companies, Healthcare and Technology Industries Targeted in First Half of 2019
The second quarter was dominated by filings against European companies, with 64% of the filings being made against corporates based in Europe and their directors and officers. Reviewing the full first half of the year, just over half of the filings were against European companies. In Cornerstone’s Midyear Assessment they observed that there was a 63% increase in the number of class actions filed against European companies compared to the last half of 2018. Two countries saw their first ever US class action in the first half of 2019 - Bulgaria and Monaco. The long arm of the US plaintiff bar continues to expand.
As in previous quarters, the most filings were against companies in the technology and healthcare industries. In fact, over half of the filings in the first half of the year were brought against companies in one of these two industries. A full breakdown of the second quarter filings based on headquarters and industry is on page 2.
D&O Insurance Implications
While directors and officers must be aware and react to this change in the litigation environment for non-US companies, the insurance market has also taken action. Premium increases, retention changes and reductions in capacity are now common for public companies as insurance rates struggle to keep up with the rapidly moving claims environment. Directors and officers should engage with their insurance brokers and insurers early in the renewal process to set expectations and discuss options available for time D&O renewal.
Directors and officers would be well-advised to concentrate on the claims experience of their insurers. An understanding of the process, participants and strategies deployed in class actions can help assist in a robust defence, as well as reducing cost, and saving valuable management time during litigation. The good news is that AIG’s claims team has significant experience assisting international clients in the defence and settlement of securities class actions, providing helpful insight and support when directors and officers need it most.
[1] Core filings are all federal securities class actions, excluding those defined as M&A filings.
[2] https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2019-Midyear-Assessment