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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
Officers See Insurance Cost Rising, With Less Coverage
By: Tamara Loomis
New York Law Journal. August 29, 2002
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EXCERPT: MEMBERSHIP on a company's board of directors used to seem like a real plum - little work, lavish pay, hobnobbing with the chief executive, flying around to fancy golf clubs in the corporate jet. But yesterday's plum has become today's hot potato. Potential candidates are begging off in unprecedented numbers, spooked by the threat of lawsuits that could dip into their personal fortunes. Their fears are not that far-fetched. Although companies routinely buy directors' and officers' (D & O) insurance to protect board members against liability for corporate misdeeds, directors are now seeing that such insurance is hardly bullet-proof. "It used to be that the insurers would simply cut a big check," said Kirk Pasich, a partner at the Los Angeles office of Howrey Simon Arnold & White. "That's all changed." The scope of coverage has narrowed, premiums have increased and for some sectors like telecommunications and technology, D & O insurance may not be available, he said. Even more alarming, directors who think they have coverage may find they do not. If an executive, director or the company itself is held to be criminally liable, the insurer will often refuse to cover anyone's defense costs. The same holds true if the company is found to have lied about its business. The companies that insured Enron Corp.'s directors and executives against shareholder lawsuits, for instance, are trying to rescind $350 million in coverage on the grounds that Enron misled them as to its financial health, thus voiding the policies. "For the first time, we're seeing that the very thing giving rise to liability is no longer covered," Mr. Pasich said. If the company goes bankrupt, directors and officers may find themselves vying for insurance dollars with company creditors or even the bankruptcy trustee.
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