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Would Your D&O Liability Insurance Policy Withstand A Bankruptcy Filing?

Through these last six months, we've sat back and watched as major American companies, icons and brand-names like Washington Mutual, General Motors and Lehman Brothers, entered a downward spiral and filed bankruptcy.

By Rick Grimes, Karen Kutger | Updated on August 02, 2009

Through these last six months, we’ve sat back and watched as major American companies, icons and brand-names like Washington Mutual, General Motors and Lehman Brothers, entered a downward spiral and filed bankruptcy.

This is not the last of this trend. According to the American Bankruptcy Institute, U.S. corporate bankruptcies surged 54 percent in 2008, and many more are on the way.

When a company files for bankruptcy– or even contemplates it–the directors and officers of the troubled firm will almost certainly face lawsuits from disgruntled investors, shareholders and regulatory bodies seeking some sort of redress.

Worse yet, directors and officers may find that their liability protection for such suits is suddenly compromised, or even unavailable in a bankruptcy situation. That could leave them personally at risk for defense costs and any financial settlements or judgments.

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