Didi and Luckin’s New York debacles shed light on corporate liability insurance as shield against class action lawsuits

Insurance premium for the directors and officers (D&O) liability insurance in the US can be 20 times more expensive than those in Hong Kong and the mainland

US-listed Chinese companies were defendants in 24 class action lawsuits in the US last year, out of a record 334 cases filed in the securities industry

Reading Time:3 minutes

The IPO of the Chinese ride-hailing company Didi Global on the New York Stock Exchange on June 30, 2021. Photo: Reuters.

Published: 1:30pm, 23 Jul 2021Updated: 10:54pm, 23 Jul 2021

Didi Global’s New York listing debacle is shedding light on a little-known area of insurance that protects corporate directors and officers (D&O) from legal liability, as a number of law firms are soliciting shareholders to sign up for class-action lawsuits in US courts.

Class action suits related to the securities industry jumped to 334 cases in the United States last year, 49 per cent higher than the average between 1997 and 2019, according to data compiled by Cornerstone Research. Chinese defendants in federal courts increased to 24 last year, the most in at least seven years, and up from as few as four in 2016, keeping pace with the record number of China-domiciled companies that flocked to the US capital markets to raise funds.

The biggest known Chinese claimant of D&O insurance was Luckin Coffee, the Xiamen-based Starbucks pretender that was kicked off the Nasdaq in June 2020 after its chief operating officer and other senior executives admitted to committing accounting fraud.

Luckin, fined US$180 million by US regulators last December, made a US$25 million D&O insurance claim eight months earlier on a consortium of Chinese insurers including Ping An Insurance Group, according to the China Banking and Insurance Regulatory Commission (CBIRC). Ping An, which faces a maximum payout of US$2 million under the syndicated coverage, said it was still reviewing the claim.

The trend is likely to pick up, as US-listed Chinese companies find themselves caught between tougher regulatory regimes like the Holding Foreign Companies Accountable Act of the US, and China’s latest rule that adds cybersecurity oversight to the layers of approval for overseas listings. Didi, the dominant ride-hailing service in China, may be under particular pressure as it forced its way to a US$4.4 billion New York listing, an act now characterised by Chinese officials as a deliberate act of deceit, sources said.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x