When Lawyers Charge $1,800 an Hour, Who Pays?
The cost of directors’ and officers’ liability insurance is rocketing as litigation proliferates. It’s bad news for companies, shareholders and insurers alike.
Securities law is becoming an enormous catchall.
Photographer: Ronny Hartmann/AFP via Getty Images
Elon Musk was on to something when he complained that the cost of insurance to protect company directors and officers from shareholder litigation has gotten out of control. The impulsive Tesla Inc. boss may be an unlikely spokesperson for the unfairness of these spiraling fees, but they reveal something about this age of corporate misadventure and trigger-happy lawyers. It’s bad for shareholders, companies and insurers alike.
When executives get sued, the payouts can be steep. Take the recent 270 million-euro ($320 million) settlement between Volkswagen AG and its directors’ and officers’ insurers over former executives’ alleged mishandling of Dieselgate.4 In the U.S., Wells Fargo & Co.’s D&O insurers agreed to fork out $240 million in 2019 over the bank’s fake customer accounts scandal.
Securities law is becoming an enormous catchall. It’s no longer just accounting issues that bosses have to worry about. It’s cybersecurity breaches, data privacy lapses, environmental calamities and sexual impropriety too. Social media is another potential minefield: Musk and Tesla’s board was sued earlier this year over his tweets.