ICI Mutual Updates Litigation Landscape

Industry insurer ICI Mutual released its annual review of claims in the mutual fund industry. ICI Mutual reported that 2019 and early 2020 saw continued positive developments in the fund industry’s ongoing defense of Section 36(b) lawsuits as fund companies saw more courtroom victories. The report notes that six of the 29 lawsuits still remain active in various stages of the litigation process. The industry also continued to see prospectus liability lawsuits and violations of state law actions over 2019-2020. Prospectus liability lawsuits included allegations of misrepresentations of market volatility risks and of investments inconsistent with investment objectives disclosed in fund documents. ICI Mutual also reported on the regulatory landscape and ongoing activist shareholder lawsuits against closed-end funds and actions against BDCs. Overall, ICI Mutual noted that regulatory matters and bankruptcy matters constituted the most common subjects of claims notices submitted by insured firms under D&O/E&O policies in 2019. The breakdown of payments made by ICI Mutual on claims submitted over the ten-year period January 1, 2010 through December 31, 2019 reflect that defense costs took up the highest proportion of payments with 46%; settlements and judgments constituted 40% of payments; and costs of correction were 14% of payments.