Executive Risk Management Services
 Rigg Executive Risk Management
It's a difficult time to be a director - or a risk manager responsible
for securing the quality D&O insurance the company needs to recruit,
retain and protect board room talent. The frequency of securities
class action suits is up more than 130 percent over the past several
years; severity has also been soaring. Since 1996, the average cost
to settle securities litigation has risen 459 percent. The frequency
of financial restatements - which inevitably trigger litigation against
directors and officers - was skyrocketing even pre-Enron, and continues
upward. Corporate bankruptcies, another event certain to put corporate
directors in the litigation crosshairs - have increased nearly 200
percent since the late 1990s. Meanwhile, the significant new boardroom
responsibilities introduced with the Sarbanes-Oxley Act of 2002 have
created a road map for an aggressive plaintiff's bar. And the future
looks even bleaker.
All signs point to an even more treacherous D&O liability environment
in the years ahead. First, regulators at all levels - including the
Securities' & Exchange Commission (SEC), US Department of Justice
and state Attorney Generals - are determined to prove their commitment
to new legislation and corporate governance standards. The SEC alone
added nearly 700 people last year, mostly to initiate investigations.
Second, courts are scrutinizing corporate America more closely. As
examples, consider two recent Delaware court decisions in which the
court questioned whether the business judgment standards used by board
members should be elevated and challenged the very definition of director
independence. Other rulings indicate that executives are newly vulnerable
to expensive fiduciary liability suits - regardless of whether they
exercise any direct control over a company's employee benefit plans.
Additional factors - including a lackluster equities market that
does nothing to bolster shareholder confidence and juries that are "desensitized" to
the value of a million dollars - are also working against directors
and officers. And finally, the plaintiffs bar is eagerly testing new
legal theories, which could add banks as targets of multi-billion
dollar securities litigation.
It is in the best interest of all parties - the risk manager, the
corporation and indeed the company's shareholders - to make talented
directors comfortable with the protection available to address their
D&O exposure. When board members are aware of the issues and the
thought-processes driving the D&O insurance purchase, they can
be confident in the protection they gain - and in their decision to
serve.
Acting as an independent director for a public company is an important
and worthwhile responsibility. Unfortunately, it is also a position
that comes with risk. It is critical that you take an active role
in safeguarding
your personal assets. And that means knowing how the company and
its D&O policy are covering you.
Ask the following questions of the company to find out if your D&O
policy will adequately protect you and your personal assets.
- Will my D&O policy cover me if I am sued as a result of
being an independent director of this company?
It depends. Now more
than ever, we anticipate independent directors to become favorite
targets for shareholder lawsuits. D&O insurance
is meant first and foremost to protect you, but often independent
directors are surprised to learn – usually at claim time – that
their D&O policy is not quite that simple. In certain situations
the policy may not be available. The increasing frequency of fraud,
bankruptcy and financial restatements and a new regulatory environment
can all affect your protection. You have a vested interest in knowing
how your D &O policy will respond, or not, in all situations.
- How do the new SEC regulations, the Sarbanes-Oxley Act of 2002
and the financial markets’ new standards increase the chances
that I will be implicated in a lawsuit as an independent director?
The
emphasis on accountability and increased penalties for noncompliance
resulting from these regulations puts independent directors at
greater peril for shareholder litigation than ever before. Additionally,
these
new regulations and specifically the Sarbanes-Oxley Act of 2002
define new responsibilities which increase the likelihood that
the plaintiffs
bar will name you – the independent director – in a lawsuit.
You should ask the company exactly how the new regulations impact
you and if any adjustments have been made to the D&O policy
to address the increased risk.
Wm. Rigg Executive Risk Management provides creative solutions to
these and other D&O issues you may face. Rigg ERM has the expertise,
creativity and commitment and stands ready to serve your organization
with client focused executive risk liability products and services.
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