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Ensuring Corporate MisconductHow Liability Insurance Undermines Shareholder Litigation$
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Tom Baker and Sean J. Griffith

Print publication date: 2011

Print ISBN-13: 9780226035154

Published to Chicago Scholarship Online: March 2013

DOI: 10.7208/chicago/9780226035079.001.0001

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Policy Recommendations: Improving Deterrence

Policy Recommendations: Improving Deterrence

(p.200) Chapter Ten Policy Recommendations: Improving Deterrence
Ensuring Corporate Misconduct
University of Chicago Press

This chapter, which sums up the key findings of this study on the impact of directors' and officers' liability (D&O) insurance on shareholder litigation, concludes that D&O insurance as it is currently structured significantly undermines the deterrence value of shareholder litigation. It discusses the ways by which D&O insurance theoretically might preserve the deterrence function of shareholder litigation. These include pricing coverage to risk, monitoring corporate policyholders during the life of the contract, and using moral hazard claims defenses to force defendants to pay more toward the defense and settlement in those cases in which there is greater evidence of genuine wrongdoing.

Keywords:   D&O insurance, shareholder litigation, deterrence function, risk, coverage pricing, moral hazard, insurance monitoring, corporate policyholders

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