Great read via The D&O Diary.
The irony is that D&O insurers are in a position from which, at least in theory, they could positively influence corporate conduct and advance the regulatory goals of the securities laws. In their book, "Ensuring Corporate Misconduct: How Liability Insurance Undermines Shareholder Litigation," Baker and Griffith explore the ways D&O insurers might provide a "constraining influence" on their policyholders. The authors conclude that as a result of actual practices and processes insurers do not in fact perform that role.
Rather, the authors conclude, D&O insurance "significantly erodes the deterrent effect of shareholder litigation, thereby undermining its effectiveness as a form of regulation." In order to try to "rehabilitate the deterrent effect of shareholder litigation, notwithstanding the presence of liability insurance," the authors propose three regulatory reforms, as discussed in detail below.
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