Kevin LaCroix, a broker with Oakbridge Insurance in Beachwood, Ohio, said that one particularly "ominous" development for insurers offering D&O protection has been the creation of a special "Independent Options Pricing Investigation Division" at a prominent New Orleans law firm.

On June 13, Asyst Technologies of Fremont, Calif., became one of the latest companies to announce a delay in its annual filing while it looks into past stock option grants. The company said it received a letter dated June 7 from the SEC, asking for documents relating to stock options from 1997 to the present.

A day later, Monster Worldwide Inc.--the parent company of global online careers resource Monster.com--announced that the company has received a direction to preserve all relevant information in anticipation of a request for documents from the SEC in connection with its informal investigation of stock option grants. Monster had announced an internal review by a committee of its independent directors a few days earlier.

With more than two dozen companies releasing initial announcements or updates on investigations by outside agencies or internal probes that same week, estimates of the number of companies that may ultimately be impacted by the widening probe vary. Moody's Investors Service reported in early June that U.S. agencies were conducting informal inquiries into stock options granting practices at 22 companies.

Lewis Kahn, a partner in the law firm of Kahn Gauthier Swick, which started the options pricing unit, said the issue has "serious implications" for directors and officers liability insurance writers.

The firm's Web site, http://www.kglg.com/options/pricing-investigation-division.asp, listed 50 companies that had drawn its attention as of June 16--because the companies had either received a letter of inquiry from the SEC, been contacted by U.S. attorneys, announced investigations or raised other red flag.

A Morgan Stanley analyst, William Wilt, said the fact that options are not a particularly important part of insurance executive compensation was good for the industry. So far in the insurance sector, only UnitedHealth Corp. has been targeted by federal investigators. HealthSouth said it has directed questions about options-granting practices to "relevant authorities."

But the threat to D&O insurers still persists, although how large it looms now is still up in the air.

John Rafferty, national D&O manager for The Hartford, noted that even though backdating activities occurred in the past, they are an issue for current D&O insurers of companies accused of the practice. This is because D&O coverage is generally on a claims-made basis, he said, explaining that "current D&O policies cover claims made now, not the insurance [policies] in effect when the activities took place."

"At this point, we are not expecting the issue to result in a major pandemic for professional liability underwriters," he noted, but warned that the threat cannot be dismissed since "any financial restatements, regulatory settlements or market-cap drops will probably help fuel the class-action pipeline."

Still, "shareholder losses...need to be endured--and linked to this particular issue--for losses to mount on liability underwriters in the insurance industry," he wrote in a research note.

Mr. Wilt said that coverage will depend on several unique issues. For example, if the practice caused a sustained price drop, and if there was proven fraud, perhaps there could be exposure--although relevant insurance policy exclusions could apply, he noted.

Former SEC Commissioner Joseph Grundfest said last year's Supreme Court Dura decision raises the stakes even higher for plaintiffs, since the fraud must be proved to be the sole cause of any price or cap decline.

The Hartford's Mr. Rafferty predicted that "most regulatory inquiries and investigations won't rise to the level of a 'claim' under a D&O policy."

Dishonesty/fraud and personal profit exclusions in most D&O policies could prevent recovery, he added, and there may be account-specific continuity and prior-acts limitations pertaining to backdating of options.

"If a remedy to a regulatory or civil suit is disgorgement of profits, this will not likely be considered a covered 'loss,' since disgorgement of ill-gotten gains generally isn't insurable," he said.

Mr. Rafferty termed the options issue "a small bump on an otherwise smooth road," adding that "it is unlikely to bring about specific policy exclusions."

The D&O insurer response is likely to be in pricing and overall limits, rather than specifically walling off options through sublimits or separate self-insured retentions, he added.

Mr. LaCroix said that insureds whose names have not yet been associated with the scandal will merely face additional underwriting queries, "but companies that have been associated with the investigations are facing challenging renewals with significant pricing increases and restricted terms and conditions."

Mr. Wilt believes that despite some coverage issues, D&O writers still will be faced with providing defense costs, which he said could be nearly half of professional liability claims payments.

"Discovery efforts are usually a significant component of legal costs, but should be manageable, we think, considering the investigations will probably focus on communications between a small group of executives and the board," according to Mr. Wilt.