Shareholder Lawsuits : Loss Scenarios From Chubb
Acquisition
Following an acquisition, a company reported a quarterly loss. Shortly thereafter, shareholders sued the company and its senior managers. The shareholders alleged that the company and its senior management improperly booked as goodwill the value of the acquired company, which had yet to produce any revenue. Subsequently, the company wrote down the goodwill, which led to the quarterly loss. 'Me shareholders further alleged that the CEO confirmed analysts' earnings projections while in possession of sales and earnings information to the contrary. The case could not be settled before trial, and the subsequent jury decision found the defendants not liable, and the verdict was upheld on appeal. The ordeal took more than six years.
Defense costs paid. $2,600, 000 Allocation level of directors and officers for defense costs: 60%
Inadequate/Inaccurate disclosure
Shareholders sued a company and its senior management alleging that they misled the market and artificially inflated the company's stock price by failing to disclose dangerous side effects of a newly approved prescription drug. Ultimately, the drug was removed from the market and the stock value dropped significantly. The case took almost three years to settle.
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Indemnity paid. $17,500,000 Allocation level of directors (within deductible) and officers for damages: 70% |
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Defense costs paid. $0 Allocation level of directors and officers for defense costs: 70% |
Failure to disclose the impact of a competitor's product
Shareholders alleged that a company failed to disclose material financial information about the impact of a competitor's new products on the company's business plan. Subsequent disclosure led to a significant drop in the stock price. The suit lasted more than two years.
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Indemnity paid., $5,000,000 Allocation level of directors (within deductible) and officers for damages: 67% |
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Defense costs paid. $0 Allocation level of directors and officers for defense costs: 67% |
Bankruptcy
Shareholders alleged that a company and its management failed to disclose the severe impact of long-term fixed supplier contracts, government deregulation of the industry and decreasing customer demand which, in combination, forced the company into bankruptcy. The parties were in litigation for five years.
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Indemnity paid. $16,000,000 Allocation level of directors and officers for damages: 50% (company had separate counsel.) |
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Defense costs paid.- $2,100,000 Allocation level of directors and officers for defense costs: 50% |
Spin-off
Bondholders and preferred shareholders alleged that a company and its board violated securities laws and breached their fiduciary duties. Shortly after issuing several hundred million dollars of additional debt, the company spun-off its less profitable division together with the debt. The more profitable division was retained. The shareholders of the spun-off division alleged that the transaction drove down the value of their holdings because the debt was not supported by a company with the earning power of the original company.
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Indemnity paid. $5,000,000 Allocation level of directors and officers for damages: 70% (company also provided warrants.) |
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Defense costs paid. $2,200,000 Allocation level of directors and officers for defense costs: 50% |
Chubb Group of Insurance Companies
This literature is descriptive only. The precise coverage afforded is subject to the terms, conditions and exclusions of the policies as issued.