Beyond Chapter 11: Entity Coverage for Directors and Officers

More than 90% of public companies purchase "entity coverage" as part of their directors' and officers' (D&O) insurance policies. Entity coverage protects the company itself — as opposed to its directors and officers — against securities claims. During the last 2 years, however, it would have been difficult for the director of any public company to avoid hearing that entity coverage creates an undue risk of depriving the director of D&O coverage if the company for which he or she serves files for bankruptcy. One major D&O insurer distributed a paper containing this gratuitous advice to the directors of every public company in the country. Many legal seminars and D&O coverage proposals prepared by brokers also warn of this danger. Not surprisingly, CEOs and general counsel often are questioned by their boards about D&O coverage in the event of bankruptcy.

6 minute read March 01, 2004 at 02:58 PM

By

Timothy W. Burns