$118 Million Settlement in D&O Suit

 
Tuesday, December 1, 2009
 
On Aug. 28, 2009, Broadcom Corp. and its D&O insurers agreed to a $118 million settlement of a shareholder derivative lawsuit alleging illegal stock options backdating by former company executives. The settlement, which still must be approved by a U.S. District Court judge, would be funded entirely by the company's D&O insurers.

The Broadcom case is notable because of the unusually large contributions of excess Side A insurers. Side A policies cover directors and officers for claims for which their company cannot or will not indemnify them. Typically, this arises when the company is insolvent or legally prohibited from indemnifying the executives, which is often the case in derivative lawsuits.

According to court records, Broadcom had $100 million in traditional ABC D&O coverage—primary and excess—which includes Side A, Side B and Side C coverage (see box, page 17). In addition, the Irvine, Calif.-based technology company had an additional $100 million in excess Side A-only coverage. Excess Side A insurers funded $40 million of the settlement.

Derivative lawsuits rarely produce settlements or judgments large enough to exhaust the traditional ABC tower of coverage.

Broadcom's is one of several big settlements of derivative lawsuits against solvent companies in recent years, including UnitedHealth Group Inc.'s $895 million settlement of backdating charges.

The prospect of increased claim activity could prompt excess Side A insurers to consider firmer pricing or conditions, observers say.

A survey released Sept. 9 by Towers Perrin reported a 33% increase in the purchase of Side A-only coverage among participating companies.
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