Supreme Court Releases Halliburton Decision

In a ruling expected to make bringing federal securities class-action lawsuits against public companies more difficult and expensive for plaintiffs, the US Supreme Court today revisited 25 years of jurisprudence with its eagerly awaited decision in the Halliburton v. Erica P. John Fund, Inc., case.

At issue during oral arguments in March was whether the court should eliminate or modify the, “fraud on the market presumption,” established in its 1988 ruling in Basic v. Levinson. The theory has served as the foundation for certain securities class action lawsuits brought under section 10(b) of the Securities and Exchange Act of 1934

In addressing the theory with Halliburton, the court upheld its prior ruling in Basic while allowing defendants an opportunity to rebut the presumption prior to class certification. Defendants will now be able to defeat class certification by demonstrating that the alleged misrepresentation did not distort the company’s stock price.

At this point, the ruling is not expected to have a material effect on directors and officers (D&O) liability insurance rates or market capacity; however more analysis is needed to determine the effect of potentially higher legal fees and expenses, which could have some impact. Some coverage innovation is expected. For example, one large insurer has already issued a new D&O policy endorsement to cover defendants’ costs of meeting the new requirement without having to first satisfy the policy’s self-insured retention.

To learn more about the Halliburton decision’s impact, please join experts from Marsh, NERA Economic Consulting, and Skadden on June 30 for a special webcast: What Halliburton Means for Securities Class Actions and D&O Insurance.

In the meantime, if you have any questions regarding the ruling’s potential effect on your organization, please reach out to your Marsh representative.