The average cost to settle a stockholders' suit against directors and officers last year was more than $70 million, a legal expert noted at a seminar last week.
The average amount "was up to $71.1 million in 2005, from $27.8 million in 2004," informed William Passannante, co-chair of the Anderson Kill & Olick insurance recovery group speaking at the law firm's annual D&O conference.
Speakers at the meeting advised executives that they face a tough insurance environment and must pay strict attention to the particulars of the D&O coverage they obtain.
They noted that the average cost of a settlement is skyrocketing as the comprehensive nature of coverage has become more and more limited and directors are being required to expend personal assets.
In the past year, Enron directors paid $13 million of their $7.1 billion settlement, according to Mr. Passannante.
"Getting a case settled today is very, very difficult," advised Arthur Abbey, a founding partner from Abbey Spanier Rodd Abrams & Paradis LLP.
In order to alleviate personal risk, board members were advised to stay focused on the details of their D&O coverage.
To avoid complications and future challenges by the insurance agents, "ask tough questions about conflicts of interest; understand how the company operates, the industry, the economics--you need to know where it is going;" seek "independent advisors;" and stay away from "dominant CEOs and passive boards," said Roger Raber, president and CEO of the National Association of Corporate Directors.
According to Anderson Kill, the actual cost of D&O premiums and the frequency of payments are both decreasing, but so is the extent of coverage. The "major focus" of a company should not be "to decrease the cost of coverage but to increase what is covered," explained Mr. Raber.
The court system and insurance providers will expect that you have a copy of your claim, double check all of the signatures and know what exactly your contract says, noted Susanne Murray, executive vice president, HRH Executive Risk Solutions.
It is of key importance to "closely compare last year's quote to see what has disappeared or newly appeared," said Ms. Murray.
Directors and officers need to take the initiative to guard their insurance in order to have a fair fight in the courtroom, she advised.
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