D&O policy responds to Boeing's 737 Max settlement

The expense and risks involved with complex litigations moved the aerospace giant to agree to the $237.5 million settlement.

The deal also requires the Boeing board have more directors with a background in aerospace or safety oversight, a shortcoming while the 737 Max was being certified. The company agreed to add a director with that expertise within a year and ensure at least three directors are similarly qualified. (Credit: Luke MacGregor/Bloomberg)

(Bloomberg) — Boeing Co. directors agreed to a $237.5 million settlement of claims they turned a blind eye to safety issues related to 737 Max jetliners, whose crashes have cost the company more than $20 billion, according to court documents.

The settlement, which is being paid by insurers covering Boeing’s directors and executives, will be handed over to the company rather than disgruntled investors who sued over the board’s oversight failures, according to a filing in Delaware Chancery Court.

Boeing directors faced scathing criticism of their handling of two fatal accidents involving the 737 Max that claimed 346 lives. Chancery Judge Morgan Zurn said directors missed a “red flag” about the 737 Max’s safety issues in the first crash in October 2018. The board didn’t move to gain greater oversight over quality and safety until a second Max plunged into a field in Ethiopia in March 2019, pension funds suing the plane maker alleged in court filings.

While Boeing directors denied any wrongdoing related to earlier oversight of the 737 Max, they said in court filings they were prompted to settle because of the “expense, uncertainty, and risks inherent in any litigation, especially in complex cases” like the one brought by the pension funds.

The deal also requires the Boeing board have more directors with a background in aerospace or safety oversight, a shortcoming while the 737 Max was being certified. The company agreed to add a director with that expertise within a year and ensure at least three directors are similarly qualified.

The plane also maker agreed to change its bylaws to require the board chairman be an independent director, and it will hire an ombudsman to report to the company’s chief aerospace officer, Michael Delaney. The ombudsman will be a “neutral third party” to assist employees who flag potential safety issues and fear retaliation, according to the filing.

In a statement Friday, Boeing said it has taken “significant actions to reinforce and strengthen our commitment to aviation safety,” adding that the oversight and governance changes “will further advance safety and quality in the work that we do.”

“It is our hope, moving forward, that the reforms agreed to in this settlement will help safeguard Boeing and the flying public against future tragedy,” New York State Comptroller Thomas P. DiNapoli said in a release. He oversees a pension fund that sued Boeing directors over the 737 Max disasters.

Zurn, based in Wilmington, Delaware, must decide whether the settlement is fair and reasonable. She also has to decide whether to approve nearly $30 million in legal fees for lawyers for the Boeing investors who sued over the crashes.

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