Directors and Officers Insurance for Public Companies

Despite the odds that, as the owner of a public company you may face the constant threat of a lawsuit being filed against your officers and directors, you may believe that this is unlikely. A recent Chubb Public Company Risk Survey has found that more than 80 percent of companies don’t feel the need to be concerned with this issue.

“This general lack of concern is disconcerting especially in light of the fact that the directors and officers of nearly one in four (23 percent) of the public companies we surveyed already have been sued. In addition, activities such as mergers and acquisitions (M&A) and enforcement of anti-bribery laws are increasing directors’ and officers’ exposure to future suits by shareholders, regulators, customers, vendors and competitors,” said Evan Rosenberg, senior vice president and global specialty lines manager for Chubb.

If your company actively manages this type of exposure you have a greater chance of receiving more favorable terms and pricing for your directors and officers liability insurance.

Acquisitions often lead to lawsuits

Merger and acquisition activity was reported to be on the increase by more than 14 percent during the last eighteen months, and sixty-four percent of the Chubb survey respondents have been involved in a merger, acquisition or restructuring over the past two years. Despite a 90 percent chance that its shareholders will sue a company targeted for acquisition, the survey found that many companies are not fully prepared for managing the risks.

“While M&A-related lawsuits may be covered by the company’s directors and officers liability policy, documented protocols may help improve the company’s defense in court or result in a lower settlement amount,” said Rosenberg.

Many companies targeted for unscrupulous practices overseas

There is also a growing concern about more aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) in recent years by the U.S. Securities and Exchange Commission and the Department of Justice. It is, of course, illegal for companies to bribe or otherwise make payments to foreign officials or companies either directly or through third parties to obtain or retain business.

In 2011, there were a record-high number of settlements for FCPA violations. Yet a majority of Chubb’s survey respondents (78 percent) are not worried about an investigation due to an FCPA violation, and 13 percent have decreased the financial and human resources the company allocates toward mitigating losses related to the law.

The problem is that a FCPA investigation can cost a company millions of dollars. In the past, violators have faced enormous fines. If your company has dealings abroad then your directors and officers insurance policy can cover directors’ and officers’ defense costs for any alleged FCPA violation as well as fines for non-willful violations of the act.

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