What Executives and Board Members Need to Know About the Cyan Decision

The Cyan, Inc., et al. v. Beaver County Employees Retirement Fund, et al, decision is sure to have a substantial effect on Directors & Officers insurance going forward. In California where Section 11 cases filed at the state level has already dramatically increased in recent years, but also throughout the U.S.

The Supreme Court ruled early last year that securities plaintiffs could bring class actions against companies under the Securities Act of 1933 in state courts.

Prior to this decision, if there was a securities claim in state court and federal court alleging breaches of the Securities Act of 1933 they would be consolidated and moved forward in one the jurisdictions, most likely federal.

This decision by the Supreme Court states that the company cannot remove the state court lawsuit to federal court, even if there’s a parallel or identical federal court action. So that permits the lawsuits in state court and in federal court, even though they are essentially identical, to progress side by side.

There have already been a record number of class-action lawsuits the last 2 years surpassing a 200% increase from the previous 10 year average.

Now with the Cyan case decision, lawsuits are more likely to be pursued at the state level where judges are more lenient towards the plaintiff, and attorneys have a lot more maneuverability. It also means that Section 11 cases can be pursued at the state and federal level at the same time.

In summary, the numbers of class action suits are projected to go up, the defense costs are projected to go up, and premiums are projected to go up.

It is more important than ever for companies to make sure they have the very best expertise to lean on in order to ensure they have the appropriate coverage to protect their directors and officers.

Best,

Rob