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The Corporate CounselorLJN NewslettersNewsSections

Director and Officer Exposure

By William L. Floyd

The current economic environment, with resulting adverse effects on the financial results of many businesses, has spurred an increase in claims and investigations. Companies that have any relationship to the credit markets, certainly to include real estate development, financial services and the mortgage industry (as well as financial institutions, investment banks, REITs, investment advisers, hedge funds, investment companies and other professionals) should carefully review their D&O coverage, well before renewal time. The continuing adverse economic conditions have resulted in increased litigation outside the financial sector. Stockholder activism is increasing, giving rise to exposure to claims. As a result, it is prudent to assess indemnification provisions and arrangements together with D&O coverage and risk management functions.

Governmental and related investigations also are and will continue to be an ongoing result of adverse conditions, related unrest in the credit markets and economic conditions. While many D&O policies cover investigations related to possible or potential violations of applicable laws and regulations, definitions contained in the policy and related riders are all important. In connection with the renewal process, careful attention should be focused on definitions. The definition of “claim” covered by the policy is significant and should be as broad as possible. D&O policies are negotiable, at the time of purchase, on renewal or during the policy period.

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