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Securities litigation update: Supreme Court to weigh class certification issues

Financial, Executive and Professional Risks (FINEX)

By John M. Orr | May 27, 2021

How might the Supreme Court’s opinion impact directors and officers (D&O) risk and D&O liability insurance market conditions?

On March 29, 2021, the U.S. Supreme Court heard oral argument in the high profile securities litigation involving Goldman Sachs Group, Inc. (“Goldman Sachs”).1 The case, now more than a decade old, has the potential to alter the course of federal securities class action litigation. Depending, of course, on the outcome of the case and the scope of the Court’s opinion, the potential exists for courts to scrutinize the materiality of public statements at the class certification stage, to make class certification less automatic, and even to decrease the number of securities class action filings. How might this impact directors and officers (D&O) risk and D&O liability insurance market conditions?

The issue facing the Court centers on the phase of class action litigation in which the plaintiffs seek class certification – in the case of securities class action litigation, this entails certification of a class of shareholders who purchased or sold company securities during a specified period of time (known as the “class period”), allegedly in reliance upon false or misleading statements or omissions.

In a typical case involving allegations of fraud, each plaintiff must satisfy the burden of proving their reliance on the defendant’s misstatements, rendering class certification virtually unachievable. In 1988, the U.S. Supreme Court case of Basic Inc. v. Levinson 2 articulated what would become known as the “Basic presumption,” or “fraud on the market doctrine,” that allows reliance to be presumed when a stock trades in an efficient marketplace in which stock prices are a function of all material public information about the company and its business.

Acknowledging the fundamental validity of the Basic presumption, the Supreme Court in a 2014 case known as Halliburton II 3, held that defendants must nonetheless be afforded an opportunity to rebut the presumption of the existence of transaction causation (that plaintiffs would not have made the investment but for the misrepresentations) by means of price-impact evidence that the purported misrepresentations during the class period did not have the effect of artificially inflating the issuer’s stock price.

In the Goldman Sachs litigation, defendants attempted to rebut the Basic presumption by arguing that the statements at issue were highly generic and could not have had a stock price impact. According to defendants, if purported reliance on generalized aspirational statements – statements such as “integrity and honesty are at the heart of our business” – are sufficient to justify certifying a shareholder class, then class certification would become a foregone conclusion in any case in which a stock price decline followed announcement of negative news.

Class certification arguably “creates an in terrorem effect that often causes defendants to settle disproportionately to the merits.”4 Indeed, this statement echoes Justice Antonin Scalia’s 2013 observation in unrelated securities litigation, where he stated in dissent: “Certification of the class is often, if not usually, the prelude to a substantial settlement by the defendant because the costs and risks of litigating further are so high.”5

It is manifest in today’s securities litigation environment that, despite the theoretical ability to rebut the reliance presumption, class certification is a near inevitability. In the seven years following Halliburton II, more than 2,000 securities class actions have been filed, yet in only five of them did the defendants successfully rebut the Basic presumption.6 The Court’s decision in the Goldman Sachs case, therefore, could have a significant impact on the future of securities class action litigation. For example, if the Court were to instruct lower courts to consider materiality questions at the class certification stage, thereby enhancing the likelihood that fewer class certification motions would be granted, plaintiffs’ attorneys may apply more scrutiny to the cases they choose to file. Filings could decrease. A ruling to the opposite effect might just yield business as usual, encouraging plaintiff firms to maintain the already steady flow of litigation, but it could also embolden them to increase their filing activity with a renewed sense that the low standard for class certification has been blessed by the high court.

D&O liability insurance policies cover the management liability risks to companies and their directors and officers. Securities litigation is the largest loss driver of public company D&O insurers, who are already facing outsized losses fueled by a record or near record number of annual filings since 2017. According to Cornerstone Research, 334 securities class actions were filed in 2020, down from 428 cases in 2019, yet well-above the 2010-2019 average of 254 annual cases.7 Of the 334 total filings, 234 of them were “core” filings, that is, those excluding M&A filings,8 which are the types of filings to be most affected by a decision in the Goldman Sachs litigation.

The impact of increased filings on the D&O liability insurance marketplace has been stark. Premiums and self-insured retentions have been on the rise for more than two years, with many companies experiencing double digit percentage premium increases (or more!) in their most recent renewals. A Supreme Court ruling for the defendants in the Goldman Sachs case could help level the playing field by creating for the first time a meaningful off-ramp opportunity at the class certification phase of litigation, in the process providing much-needed relief for insurers and insureds alike.


1 Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, No. 20-222.

2 Basic Inc. v. Levinson, 485 U.S. 224 (1988)

3 Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014)

4 Skadden, Arps, Slate, Meagher & Flom LLP, “Supreme Court To Examine the Presumption of Classwide Reliance,” December 11, 2020, accessed at

5 Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 485 (2013) (Scalia, J., dissenting).

6 Frankel, Alison, “Goldman to Supreme Court: Make it easier for defendants to escape shareholder suits,” Reuters, January 26, 2021, accessed at

7 Cornerstone Research, “Securities Class Action Filings, 2020 Year in Review,” accessed at

8 Id.


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


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