Executive liability is a large threat for all sizes of technology and life science firms. In addition to litigation damages and expenses, companies face distractions, and loss of corporate opportunities. Although a comprehensive executive liability insurance policy will go a long way towards reducing the exposures, they face greater exposures if they have no risk control practices in place.
Reviewing the Claims Data
Upon the release of this year’s Dechert Survey of Securities Fraud Class Action Lawsuits, many Life Science firms have been forced to take a closer look at their risk avoidance strategies. The Survey showed that securities class action lawsuits against life science firms have continued to rise steadily since 2011.
The survey showed that in 2012, 27 pharmaceutical, bio-technical, and medical companies faced security suits. This number represents over 18% of all securities suits filed during the year of 2012. During the year of 2011 only 17 companies experienced securities suits, reflecting a total of 9% of total securities claims. This information shows that from 2011-2012, securities claims nearly doubled. Unfortunately, small cap Life Science firms continue to be targets for suits. Those with market caps under $250 million made up 50% of all claims against Life Science firms. In comparison, the survey showed in 2011 these firms accounted for 58% of total claims.
Over 43% of the total claims dealt with misrepresentations of products and product safety. In addition, insider trading still appears to be a common part of most of the complaints that are filed. It is important to develop a comprehensive Directors and Officers Liability program that includes a solid risk control program. Smaller companies must be especially vigilant as the studies show they are at the highest risk.
Directors and Officers Liability and Risk Control
D&O insurance is designed to protect against claims made against them while serving on a board of directors or as an officer. These policies are written on a claims-made basis, usually contain no duty to defend policy language and the scope of the coverage, pricing and underwriting criteria can vary.
When a Life Science firm includes risk control into their comprehensive D&O program they can do a lot to reduce the threat of D&O claims. D&O loss control programs specifically tailored to their company Includes risk control in areas of securities trading, antitrust compliance, financial integrity, managing conflicts of interests, bribes and kickbacks, board appointments and behavior, misappropriation of corporate assets and confidentiality. The goal of any D&O loss prevention program is to sensitize the company’s executives to exposures and place policies and procedures to minimize the exposures.
Working with a TechAssure Association member can help you develop a comprehensive D&O program. A TechAssure member will help you customize an insurance plan, which will work seamlessly with your risk control strategy. Please contact us for more information on how a TechAssure member can help your firm.