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On March 20, 2018, the Supreme Court decided Cyan, Inc. v. Beaver County Employees Retirement Fund which has fundamentally changed the IPO market by opening the floodgates of securities class-action lawsuits against corporations in state courts. (You can read more about the March 20, 2018 ruling here.) Thanks to the Cyan ruling, securities lawsuits are no longer relegated to federal courts, which have more safeguards in place to protect defendants in securities litigation.
We’ve already seen evidence of how the Cyan ruling is increasing premium and retentions for D&O liability coverage. Any company going out with an IPO now, or in the future, will face more exposure than they did pre-Cyan.
D&O policies should be as broadly negotiated at each renewal to account for changes in litigation trends and specific rulings. Because Cyan is so new, and its repercussions still being meted out, understanding how plaintiffs are currently bringing lawsuits in IPOs is vital to crafting policy language that addresses IPO-related liabilities, and to negotiating the policy itself.
Here are just a few of the many areas where crafting state-of-the-art language in a contract is critical in mitigating risk:
Given the difficulties of defending securities claims in multiple state courts, it’s critical for directors and officers to make sure they work with insurance brokers who can analyze and strategically assimilate lessons learned from the current litigation landscape to protect against the exposure associated with Cyan.