Directors and Officers Pursuing More Protection from Litigation

March 7, 2012 (PLANSPONSOR.com) - An increasing number of corporate directors and officers are showing more interest in the insurance programs their companies use to protect them against potential litigation.

This is an indication they are growing concerned over the wide range of exposures confronting them, according to an annual survey by global professional services company Towers Watson. The 2011 Directors and Officers (D&O) Liability Survey also found that many U.S. public companies, as well as private and nonprofit organizations, increased their D&O liability limits last year.  

More than two-thirds (69%) of respondents reported they received an inquiry regarding the amount and scope of their D&O insurance coverage in 2011, an increase from 57% in 2010. The survey also found that 25% of public companies surveyed and 14% of private and nonprofit companies said they had increased their D&O limits at renewal.  

Regulatory claims again topped the list of D&O liability concerns overall, with 81% of respondents citing this as a top three concern, an increase from 78% in 2010. More than two-thirds (68%) of respondents ranked direct shareholder and investor lawsuits as a top three concern, followed by derivative shareholder/investor litigation (58%).  

In addition, nearly two-in-10 (18%) private and nonprofit organizations reported a greater increase in their primary D&O policy premium, with only 11% attributable to a primary limit increase.

Other highlights of the Towers Watson 2011 Directors and Officers (D&O) Liability Survey include: 

  • The scope of coverage for directors was rated a concern by three out of four (75%) public company respondents, yet very few firms (7%) actually purchased insurance dedicated to independent/outside directors. 
  • Nearly two-in-10 (19%) survey respondents that filed a D&O claim last year were dissatisfied with the insurer’s handling of the claim. This percentage suggests insurers should make claim handling a priority in terms of improving customer service. 
  • Despite increased interest from their directors and officers, less than half (47%) of the respondents conducted an independent review of their D&O policies in the past two years. Among those that conducted a review, 45% used a law firm, while 36% completed the process through a broker. 

The survey was based on 401 public, private and nonprofit organizations that purchased D&O liability insurance in 2011.  

The complete survey report can be downloaded from http://www.towerswatson.com/research/6532.

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