“I don’t need to worry about antitrust lawsuits, we don’t participate in anticompetitive behavior.”
When thinking about antitrust lawsuits in the US, large tech behemoths like Amazon or Google initially come to mind. However, exposure to this type of litigation is everywhere and can happen to businesses of all sizes. As my colleague, Adam Stewart, always says, “You don’t have to be guilty, you just have to be accused.”
In recent years, litigation has gone through the roof. The second you are implicated in a suit, the clock starts ticking. Defense costs pile up, time spent away from core business operations rises and irrecoverable reputational damage ensues. These types of suits and their defense expenses could crush profitability and, for smaller firms, even lead to bankruptcy if not managed and mitigated appropriately.
The Cost of Anticompetitive Behavior
Under the Clayton Act, any person who has been harmed by the anticompetitive practices can seek triple damages. In a recent case out of Missouri, a Federal Jury found the National Association of Realtors (NAR) and certain residential brokerages liable to pay $1.78 billion to local home sellers. In accordance with the Clayton Act, damages could be increased to over $5 billion. Similarly, in Washington D.C., the District’s Attorney General, Brian Schwalb, is suing 14 large landlords claiming that they have been colluding with RealPage to keep rents high. While this case has yet to play out, treble damages are something the implicated firms will have front of mind as they navigate the legal process.
The second concerning aspect of antitrust litigation is the domino effect. You can be sure that every player in the real estate sector is watching both cases like a hawk. With precedent already set on the NAR case, we are beginning to see similar cases pop up across the country. A new copycat lawsuit following the NAR case was just brought in Georgia, targeting not only large associations but small local real estate agents. The Wall Street Journal also recently reported another, much larger, class-action suit could go to trial in an Illinois Federal Court next year. The suit would involve 20 housing markets with damages potentially reaching $40 billion.
It’s easy to see why antitrust cases should not be taken lightly.
Mitigating The Risk of Antitrust Lawsuits
Relying solely on insurance to protect your organization’s balance sheet is a fatal mistake. When you send your program out to the insurance marketplace every couple years, you’re at the mercy of factors outside of your control: macroeconomic trends, reinsurance costs, carrier profitability, etc.
That’s why the most important part of any risk management process is prevention. It is also the least expensive.
A few ways that organizations can prevent antitrust claims:
- Educate all directors and officers of risks that come along with functions like pricing products, attending trade association events, developing advertising campaigns and running a sales team.
- Disclose any potential conflicts of interest amongst directors and officers.
- Document topics covered at all board and key executive meetings with as much detail as possible.
- Investigate any red flags that give reason to believe anticompetitive practices are occurring.
Insurance-The Last Line of Defense
Even with a comprehensive risk management program focused on prevention, claims still happen. Insurance is there to the relieve the financial fallout that ensues.
Antitrust suits often involve allegations against both the entity and its directors and officers. This can make it difficult to determine which type of insurance policy would pick up damages and defense costs. There have been certain cases where coverage was found under General Liability, Errors and Omissions or Media Liability policies. However, it’s most likely going to be found under a Directors & Officers Liability form.
It’s best to thoroughly review your D&O policy with your insurance advisor as coverage for antitrust can be excluded or sublimited. Common exclusions to look out for include fraud, personal profit and claims made specifically against the business entity. As in most insurance contracts, there are also “other insurance” clauses that could bring issues when determining which policy will pick up a claim. While the complexities of antitrust coverage cannot be fully detailed in one post, be sure to meet with your insurance advisor regularly to avoid potential gaps in coverage.
Today’s world of risk is constantly evolving and financing risk is expensive and reactive. Having an insurance advisor who only focuses on insurance is no longer effective when managing risks in today’s business world. Instead, it is critical for business owners to partner with an insurance team who is well versed on the importance of crafting a risk management program centered on prevention.
Be proactive and regain control of your organization’s total cost of risk.
About the Author
In his role at HWP, Jack acts as a commercial property & casualty risk advisor focusing on the Private Equity, Construction & Contracting and Commercial Real Estate sectors.
Prior to joining HWP, Jack spent 7 years at global insurer, Chubb. He most recently led the New York City- based Middle Market Private Equity Underwriting team.
Jack holds an Insurance Risk Management degree from the University of South Carolina and an MBA from New York University’s Stern School of Business. He is also a Chartered Property & Casualty Underwriter (CPCU). He is a current member of ABC Chesapeake Shores and the Association for Corporate Growth (ACG).
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