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Ensuring Corporate Misconduct: How Liability Insurance Undermines Shareholder Litigation

by Tom Baker and Sean J. Griffith

University of Chicago Press, 2010
eISBN: 978-0-226-03507-9 | Cloth: 978-0-226-03515-4
Library of Congress Classification HG8053.8.B35 2010
Dewey Decimal Classification 368.56

ABOUT THIS BOOK | AUTHOR BIOGRAPHY | REVIEWS | TOC | REQUEST ACCESSIBLE FILE

ABOUT THIS BOOK

Shareholder litigation and class action suits play a key role in protecting investors and regulating big businesses. But Directors and Officers liability insurance shields corporations and their managers from the financial consequences of many illegal acts, as evidenced by the recent Enron scandal and many of last year’s corporate financial meltdowns. Ensuring Corporate Misconduct demonstrates for the first time how corporations use insurance to avoid responsibility for corporate misconduct, dangerously undermining the impact of securities laws.

As Tom Baker and Sean J. Griffith demonstrate, this need not be the case. Opening up the formerly closed world of corporate insurance, the authors interviewed people from every part of the industry in order to show the different instances where insurance companies could step in and play a constructive role in strengthening corporate governance—yet currently do not. Ensuring Corporate Misconduct concludes with a set of readily implementable reforms that could significantly rehabilitate the system.

AUTHOR BIOGRAPHY

Tom Baker is professor of law at the University of Pennsylvania and the author of several books, including The Medical Malpractice Myth, also published by the University of Chicago Press. Sean J. Griffith is the T. J. Maloney Professor of Business Law at Fordham University.

REVIEWS

"Baker and Griffith have written a readable, interesting and important book. Their discussion of the actual role of D&O insurance in the securities litigation process is enhanced by their research methodology. . . . The authors bring an informed outsider perspective to their discussion of the D&O insurance industry. The authors are painfully successful in highlighting the peculiar pathologies of the D&O insurance industry and the ways that D&O insurers and other marketplace participants systematically undermine both the insurers’ financial interests and the regulatory goals of the securities litigation system."—Kevin M. LaCroix, the D & O Diary

— Kevin M. LaCroix, the D & O Diary

“This is an extraordinary book, written in a clear and readable style. The lack of transparency in most accounts of corporate D&O insurance limits data and defeats empirical study. Because the authors actually ask participants themselves to explain what happens, from an insider’s perspective within a very flawed system, rich evidence in support of the agency-cost hypothesis is at least uncovered. Until now, those of us in the field had reason for concern about litigation dynamics and the role of insurance, but no real evidence. Now we have detailed interview excerpts to go to the heart of the problem. More than any contribution to the field of corporate litigation in the last decade, this book breaks new ground.”—Donald Langevoort, Georgetown University Law School

— Donald Langevoort, Georgetown University Law School

“This is a fascinating look at a little-studied, lesser-understood, but extraordinarily important industry. Tom Baker and Sean J. Griffith employ a novel approach and the results of their interviews with numerous participants in the directors’ and officers’ insurance market provide new knowledge useful for scholars and students alike. In the fields of finance and risk and insurance, this book will be mandatory reading for those who want to understand the institutional details of the market and how plaintiffs and defense lawyers think about D&O cases. There’s no other book quite like Ensuring Corporate Misconduct,which offers impressive access to inside knowledge previously unavailable to those outside of the insurance industry.”—Martin F. Grace, Center for Risk Management and Insurance Research, College of Business, Georgia State University

— Martin F. Grace, Center for Risk Management and Insurance Research, College of Business, Georgia State University

TABLE OF CONTENTS

Acknowledgments

Chapter 1. Introduction
Chapter 2. Shareholder Litigation
Chapter 3. An Introduction to Directors’ and Officers’ Liability Insurance
Chapter 4. The Puzzle of Entity-Level D&O Coverage
Chapter 5. Pricing and Deterrence
Chapter 6. Insurance Monitoring and Loss-Prevention Programs
Chapter 7. The D&O Insurer at Defense and Settlement
Chapter 8. What Matters in Settlement?
Chapter 9. Coverage Defenses and Disputes
Chapter 10. Policy Recommendations: Improving Deterrence

Notes
References
Index

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