Crisis Poses New Risks to Directors

Crisis Poses New Risks to Directors - 5/15/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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Crisis Poses New Risks to Directors, A Prudent Choice Is To Hire Counsel Or A Sophisticated Broker To Help Navigate The Different D&O-Coverage Options
Victor F. Mustelier

BusinessWeek. May 15, 2009
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EXCERPT: Directors and officers need protection for their personal assets. The need is especially great now, in the wake of the financial crisis, which has opened the door for government investigators and the plaintiffs' bar to seek to hold corporate officials responsible for investors' losses. In this climate, liability insurance tailored narrowly to the needs of directors and officers is an option every corporate board should consider. Protection for individual board members and officers, the original purpose of D&O coverage, becomes critical in financial crises. A type of D&O coverage called "Side A" or "Difference-in-Conditions" coverage fulfills this need. It can be purchased as part of a company's D&O insurance program, in addition to the now-standard D&O coverage, which insures both directors and officers and the company for its own liability (or reimbursements of directors). A prudent choice is to hire counsel or a sophisticated broker to help navigate the different options that exist as regards D&O coverage. The crisis in the financial services sector already has begun to cause a wave of litigation and investigations involving corporate officers and directors. Securities and other lawsuits place at risk the personal assets of corporate officers and board members. That risk ordinarily is dealt with through the purchase of Directors and Officers Liability ("D&O") coverage. But recent events raise the concern that even standard D&O coverage is uncertain. Unlike standard D&O coverage, DIC policies typically cover only those situations in which the director or officer has not been indemnified by the company. […] If carefully selected and negotiated, DIC coverage: (1) provides that officers and directors will be protected in the event the company files for bankruptcy; (2) protects officers and directors from the possibility that they will be left uninsured if the policy limits under the company's standard…

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