Proposed SEC disclosure rules could prompt lawsuits: Panelists


SAN DIEGO — Proposed U.S. Securities and Exchange Commission disclosure rules on climate-related risks and cybersecurity could prompt more litigation and claims for the directors and officers liability market, panelists said Wednesday at the Professional Liability Underwriting Society’s 35th annual conference.

“More disclosure, more securities litigation,” said Noelle M. Reed, partner, securities litigation, at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates.

“Any time you have disclosure you’re going to have plaintiffs scrubbing, looking for claims to make,” Ms. Reed said.

There’s a potential conflict between what companies say on climate and cybersecurity issues in less formal disclosures, such as in brochures, on earnings calls or in presentations to employees and what they say in regulatory filings, she said.

“From a securities litigation perspective, anytime you’ve got new rules requiring a company to speak — and in some cases not with a materiality requirement — it’s going to be rich for plaintiffs to mine,” Ms. Reed said.

Climate disclosure rules may initially lead to a spate of new lawsuits but are unlikely to yield long-term business for the plaintiffs bar, said Doru Gavril, a partner with Freshfields, Bruckhaus, Deringer LLP.

What companies should be looking at is how they can get into trouble under the new rules, Mr. Gavril said.

One situation is where companies “make reckless statements or say something aspirational” and put it out there in a disclosure that makes it sound like fact, but they have no backing for it, he said.

Companies that think they can measure their impact on the environment, but in fact are not, is another situation, he said.

“Those are the pressure points. You’re always going to have litigation after some large traumatic event, whether it has to do with climate issues” or anything else, Mr. Gavril said.

Companies that spend hard dollars to make themselves a better organization or a less likely target of a lawsuit will differentiate themselves from a coverage standpoint, said Jack Flug, head of U.S. FINPRO claims at Marsh LLC.

“Clients that make the investment to batten down the hatches to deal with the issues that are coming their way are a better risk,” Mr. Flug said.

The D&O market has gotten better for buyers and from the standpoint of broking deals, but not for underwriters, he said. The market went up “far too fast” and came down just as quickly, he said.

“If you look at where things were two years ago, and you compare it to today, it’s a bit better if you’re a buyer — there’s no question about it — but the claims are still there,” he said.

As the SEC disclosure rules get more fulsome “there is a distinct possibility” it will give more fodder to the plaintiffs bar, Mr. Flug said.

The panel was moderated by Matthew McLellan, senior vice president at Marsh.

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