|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
D & O Insurance Meets Accounting Fraud: So-Called 'Side A' Coverage Can Go Far To Protect Directors And Officers From The Financial Impact Of Lawsuits Stemming From Charges Of Material Misrepresentation Of Financial Statements; Directors' And Officers' Liability Insurance
Paul A. Ferrillo
Financial Executive. December 1, 2004
_________________________________________________________________________
EXCERPT: The staid world of directors and officers ("D & O") liability insurance has undoubtedly been altered by the rash of accounting fraud litigation that has grown exponentially since November 2001, after the filing of a securities fraud case involving Enron Corp. Prior to the Enron case, and during the period of a "soft market" for D & O insurance, nearly all D & O claims were customarily met with a "reservation of rights" letter from the carrier, which was normally cursorily read by the company's risk manager and/or general counsel, then promptly filed away. The claim progressed towards conclusion, and was ultimately dismissed, resolved or paid, likely without much fuss from the carrier. The post-Enron world changed the face of D & O insurance in multiple ways. But probably the most important change was the re-institution by D & O carriers of a once-discouraged, customer-unfriendly practice of filing lawuits seeking to rescind their insured's D & O policy on account of "fraud" allegedly perpetrated by the company and its directors and officers. The mere threat of rescission, even if not carried to conclusion, often places the company in the terrible position of not only fighting off multiple securities class actions and potential regulatory investigations--and absorbing the potentially huge costs associated with both--but fighting its insurance carriers as well. That's daunting, especially when the company is also trying to meet its financial obligations while rallying management and employees to stay the course. Though accounting fraud litigation--especially that precipitated by a restatement of earnings--is undoubtedly painful, some of the pain and uncertainty (especially for the company's directors and officers) can be lessened if the company purchases non-rescindable "Side A" D & O coverage. |
|
|
