More Paid to Shield Directors, Officers
Companies are paying up to protect their leaders from potential lawsuits, a new report shows.
About a quarter of public firms raised the limits in their directors' and officers' liability insurance policies last year, while one in seven private or nonprofit companies did the same, according to the results of a poll expected to be released Wednesday by Towers Watson, a risk-management consulting company.
Together, the 400 companies surveyed reported an average policy limit of $87 million, up from $80 million in 2010.
The unusually large increase reflects deepening concern over the exposures that company leaders face in "a highly litigious environment," says Larry Racioppo, leader of the executive liability practice at Towers Watson. The policies, generally called "D&O liability insurance," shield board members and executives from personal losses when regulators, shareholders, employees or clients sue a company.
Experts say that such policies have gotten more attention thanks to lawsuits that forced directors at both Enron Corp. WorldCom Inc. to pay millions out of pocket, because their firms' liability insurance didn't cover the cost of the legal settlements.
Respondents cited regulatory claims as their top concern, Mr. Racioppo says—a change from a few years ago, when firms tended to worry more about securities class-action suits.
Most companies haven't yet put their policies to the test, the study suggests: Nearly two-thirds of respondents said they haven't faced any claims against their D&O insurance policies in the last decade.
—Leslie KwohTake a Deep Breath, Make Ethical Choices
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