“What's been getting a lot of press is the financial difficulties of some of the big players,” he said. “So I think risk managers and boards are probably taking a much harder look at the counterparty risk. They're looking at the financial strength of their carriers as never before.”

He said organizations looking to protect independent directors are looking at the amount of limits they buy. In the last five or six years, he said the trend has been to buy “some traditional D&O coverage and some excess A-side only. The next trend we're starting to see is they're starting to buy independent directorship liability coverage or coverage for the outsiders,” although this still is not widely purchased, he said.

Where are boards vulnerable right now?

“The issues most companies are facing have to do with financial distress. You almost can't open the newspapers everyday without seeing a large company filing Chapter 11. You're seeing an ongoing trend of financial difficulty.”

He noted “an interesting phenomenon” that follows these circumstances related to the obligations of board members.

“Traditionally with a publicly traded company, the boards owe their loyalty to the shareholders and have to act in the best interest of the owners,” he said. “What happens when you get into this zone of insolvency [is that] your loyalty switches from the shareholders to creditors” as a board member, he said.

In addition, directors of financially struggling firms face a different set of risks, when obligations to creditors may override their duties of loyalty to owners.

“It's not like there's a big sign in the road, but I think that's a very tricky point in a company's evolution,” he noted.

At this juncture, he said, organizations must determine when they are really in trouble. They now must protect the company's assets for the benefit of creditors, “which is different than what they've been doing all along.”

“That's where I think boards have really got to be focused,” he added, noting that they have to “stay on top” of not only their company's operations, but what's going on “up and down the food chain.”

He said boards need to look at competitors of the company, suppliers and creditors. “So their job has gotten so much more complicated, because all the people in their supply chain and their financial are struggling.”

All of this has created “a lot of anxiety and a lot of demands. I'd say their board meetings are probably a lot longer, tougher than they were two years ago, because the financial crisis has spread so widely.”

Right now, he said, board vulnerability “is coming to the fore. When times are good, the stock market is increasing at a slow, steady pace.” People aren't as concerned, “as long as everybody's making money,” he said, adding that upon entering “a volatile stock market, all of a sudden, all the things you weren't watching as diligently start to show up.”

In addition, “if you start getting into that change of loyalty” issue, he said, “it's very tricky.”

To help directors deal with the many issues they are facing, he said Chubb has updated its handbook for independent directors, titled “Loss Prevention Guidelines For Independent Directors.”

Chubb publishes a variety of guides to help instill “a sense of risk management and good behavior,” he said. “You can be the best company in the world, do everything right, [but] it doesn't mean you're not going to get sued. You want to have the procedures and the documentation, so you have a good defense.”

He emphasized that being a good, well- managed, well-run company isn't always enough. “But if you are doing the right things and focusing on director education, board attendance, getting outside experts and all the things we talk about, it does make it easier to defend the case and to make sure you can resolve the litigation with little or no cost, other than defense costs,” he said.

Ultimately, he added, “it's good for us as an insurer and it's good for our customers to try to find ways to mitigate damages.”