opt-out lawsuits
A lawsuit instituted by the plaintiff separately from a class action suit
in which the plaintiff could have participated as a member of the class. In
other words, the plaintiff, usually an institution such as a pension fund as
opposed to an individual investor, has opted out of the class action, deciding
instead to pursue his or her own separate action. Often, these are suits alleging
wrongdoing by corporate directors and officers. Opt-out lawsuits are generally
believed to produce larger recoveries for plaintiffs, compared to the amounts
these plaintiffs would have recovered by remaining a member of the class. Opt-out
lawsuits have the potential to create problems for directors and officers
(D&O) liability
insurers because fragmented settlements make it more difficult to evaluate an
insurer's ultimate liability for a claim and therefore set accurate reserves.
Opt-out lawsuits also create problems for insureds, since truncated settlements
make it harder to apportion and conserve remaining D&O policy limits so that
monies will also be available to settle other claims.