Few risks are as stressful to a board director or corporate officer as a lawsuit alleging wrongful acts in their employment capacities. This explains why Directors and Officers liability insurance (D&O) is critical to absorbing their legal defense costs in civil and criminal trials and regulatory investigations.

Such actions are not for the fainthearted. At the losing end of civil or criminal trial, directors and officers can pay settlements to the full extent of their net personal wealth, be incarcerated and damage reputations beyond repair. No wonder 71 percent of directors and officers at 325 companies in a 2012 survey by Towers Watson expressed "significant concerns" over the scope of their D&O insurance policy coverage.

If such suits were rare, this stress might be overwrought. But, D&O litigation is common and virtually routine in situations where one company acquires another. According to a report by Cornerstone Research and Stanford Law School, nearly every acquisition of a large U.S. public company in 2012 prompted multiple lawsuits once the deals closed. The report cited evidence of 740 lawsuits filed against directors and officers involving M&A transactions—hence the abundant worries.