Soaring directors’ and officers’ (D&O) premiums and insurers leaving the market are a sign that “something is not quite right” in the securities class action environment, the Australian Law Reform Commission (ALRC) says.
The law group, which provides recommendations to the Attorney-General, looked at the D&O issue as part of a broader inquiry on class actions and litigation funders. It says the Government should conduct a separate review of the shareholder class action regime.
“The ALRC viewed this particular issue as being the canary in the coalmine – something is not quite right, but the evidence is not yet available to establish precisely what,” the ALRC says in a report tabled yesterday.
D&O premiums have surged more than 200% in the past two years, with the current pool becoming inadequate to cover increasing and expensive claims, insurers say.
WR Berkley, Vero, Lloyd’s Novae and Lloyd’s Canopius have withdrawn from providing cover to Australian Securities Exchange (ASX) listed companies, a Marsh submission says, while XL Catlin, Zurich, Chubb, Allianz and Liberty are among those that have ratcheted back their exposures.
Some have blamed the ASX continuous disclosure rules for increasing class action activity and rising costs, while others refute the need for changes to rules that provide important protections.
The ALRC recommends a review of the legal and economic impact of the disclosure and misleading and deceptive conduct rules in the Corporations and Australian Securities and Investments Commission acts.
The proposal was first flagged in a discussion paper last May, sparking “claims and counter-claims” that the ALRC says should be examined given concerns about the “double-edged” nature of previous reforms.
The ALRC Class Action Proceedings and Third-Party Litigation Funders report includes 24 recommendations.
It says the Federal Court should have “exclusive jurisdiction” over class actions arising from the Corporations and ASIC Acts and suggests amendments to address the rising number of competing class actions.
“Those amendments seek to ensure that, wherever possible, there is a single class action in order to litigate a claim,” it says. “Multiple class actions increase uncertainty, costs and delays.”
It proposes greater oversight of third-party litigation funders, without requiring that they become licensed in the same way as financial service providers, and notes their important role in securing access to justice.
“A suite of recommendations to improve the regulation of litigation funders and to support the unique role of the Federal Court in protecting the interests of all group members is recommended in lieu of a licensing regime for litigation funders,” it says.