Given the high stakes of the ongoing Disney-Ovitz trial, a reader asks Professor Ribstein that question, and the Professor speculates that the reason is the importance of the case. Having been involved in similar high stakes cases, that’s certainly one of the reasons that the case has not settled. However, the non-settlement is also likely a result of the D&O insurer’s investment banking analysis of the case.
In short, the Disney D&O insurer probably concluded before trial that the Disney defense has a good chance of winning the case. Thus, not only does the insurer salivate at the thought of knocking the plaintiffs’ damage claims out entirely, the insurer views the risk of a damages judgment in excess of the D&O policy limits as remote. That’s important because the insurer is likely responsible for any such judgment in excess of policy limits if, before the case went to trial, the insurer declined the directors’ demand to settle the case within policy limits {which demand is almost always directed to the insurer in such cases) and the plaintiffs actually offered a settlement within policy limits (such an offer is almost always made in such cases). Thus, the Disney directors are probably not too concerned about a judgment in excess of policy limits that might expose their personal assets to pay a portion of the judgment.
Inasmuch as the Disney D&O insurer views the defense case as strong and the risk of a judgement in excess of policy limits as remote, the insurer figures that the probable wide gap in settlement positions within policy limits before trial made taking a flyer on knocking the plaintiffs’ claims out completely a reasonable risk. In that regard, the Disney case differs from the recent settlements involving Enron and Worldcom directors, where the insurers recognized that they were going to end up paying policy limits regardless of whether the cases settled or went to trial. Therefore, the insurers’ sole goal in those cases was to remove the risk of an outcome where the insurers might be liable for damages in excess of policy limits. The “policy limits” settlements accomplish that goal.
Update: Be sure to check out Professor Ribstein’s typically insightful response, particularly his point about the insurer’s interest in risking an adverse judgment in the Disney case to promote the clarity of result that makes future underwriting decisions easier. Good stuff.