A Corporate Counsel's Guide to the Basics and Trends in D&O Insurance

April 25, 2000

Today, more than ever, corporate management is under attack.  In the wake of the Enron debacle, corporate decisions are more carefully scrutinized, and the conduct of the company’s directors and officers are now constantly under the watchful eyes of investors, creditors, and government regulators.  This heightened scrutiny compels every corporate officer and counsel to better understand D&O insurance, the one product specifically aimed at protecting important assets of directors and officers.  Of course, with increasing litigation against directors, officers and their companies, a basic understanding of D&O issues is simply not enough.  One must also stay abreast of emerging issues under the D&O policy.

One type of increasing litigation against directors and officers is securities litigation.  According to a recent study by the Stanford Law School Securities Class Action Clearinghouse, plaintiffs filed 327 federal securities class action lawsuits during 2001.  That figure is up 60% over the previous year.  Additionally, the size of settlements of securities litigation has also increased.  The same report found that following the Federal Private Securities Reform Act of 1995, securities litigation settlements averaged nearly $25 million, up from $8 million before the reform act.[1]

The purpose of this paper is not to provide an exhaustive or technical treatment of D&O insurance.  Instead, the objective here is twofold.  First, this paper will hopefully equip corporate counsel with a basic understanding of D&O insurance.  Second, it serves to introduce to corporate counsel some key emerging issues under the D&O policy.

[1]  The Stanford study is cited in Business Insurance, March 25, 2002.

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