AOL Time Warner Derivative Litigation Settlement: More to It Than Meets the Eye?
The Stipulation of Settlement filed with the Court states that on September 5, 2005, the derivative litigation plaintiffs made a policy limits demand under the Company's D & O Policy, and on September 7, 2005, "the Company was able to reach a settlement with its directors and officers insurance carriers pursuant to which the carriers will pay approximately $200 million in addional fund in connection with the securities and derivative claims listed in Exhibit D." Although the propinquity of the plaintiffs' demand and the insurers' settlment could be interpreted to suggest that the former caused the latter, that interpretation may be an illustration of the logical fallacy post hoc ergo propter hoc ("after this, therefore because of this"). By its own terms, the Stipulation states that the $200 mm payment under the insurance company settlement was in connection with both the derivative and the securities cases, not the derivative cases alone. Moreover, the referenced Exhibit D identifies 38 separate items of litigation in connection with which the insurance settlement had been made, including the SEC investigation, the DOJ investigation, the consolidated securities litigation, the ERISA litigation, and a very long list of many other items, including but definitely not limited to the derivative litigation.
Accordingly, it does not appear accurate to conclude that the $200 mm was paid just to settle the derivative litigation, or at least to settle the derivative litigation alone. Indeed, the parties never make that statement in any of the supporting documents. The documents state only that the "Derivative Actions were a substantial factor in the Company's ability to obtain an approximately $200 million insurance recovery." The settlement documents apparently are quite careful not to say how substantial of a factor the derivative actions were, or how substantial other factors (such as the $2.65 billion consolidated class action settlement) might have been.
The final settlement hearing in the consolidated derivative litigation is scheduled for June 28, 2006.