ICI Mutual Sees Increase in D&O Claims in 2020
In its latest Claims Trends report industry insurer ICI Mutual reports that 2020 saw a year-over-year increase in the overall number of claims submitted by insured fund groups under their directors and officers/errors and omissions (D&O/E&O) policies. Nearly 40% of ICI Mutual’s insured fund groups submitted at least one claim notice over the five-year period 2016–2020. According to the report the data suggest that in the current environment, claims frequency remains an issue for the fund industry. Claims covered a number of categories, with bankruptcy (30 percent of claims), closed-end funds litigation (17 percent), and regulatory matters (17 percent), constituting the most common subjects of claims notices submitted under D&O/E&O policies in 2020. While the Section 36(b) litigation landscape has almost ground to a halt, fee litigation under ERISA remains active, ICI Mutual noted. Claims also continue to rise in the closed-end funds activism sector, and new claims have arisen in prospectus liability. For instance, in February 2021, two prospectus liability lawsuits were filed in New York state court, alleging that a mutual fund, its adviser, its trustees (including independent trustees) and certain officers, and distributor, among others, misrepresented, in the fund’s registration statement, how the fund valued swap contracts for purposes of calculating the fund’s net asset value, and a parallel class action lawsuit against many of the same defendants was also filed.