Chubb says there is a “general lack of concern” among surveyed public companies that their directors and officers will face a lawsuit.
According to the survey of 145 public companies, 80 percent of them think it is unlikely their executives will be sued.
“No one thinks they are going to get sued, but we are paying a lot of claims,” says Evan Rosenberg, senior vice president and global specialty lines manager for Chubb. He calls the results of the survey “disconcerting,” since 23 percent of the surveyed companies admitted their directors and officers have faced lawsuits in the past.
“Rates have gone down in the last seven or eight years, but the number of cases is not down; neither is how much attorneys charge for a defense,” he says. “Companies need to perform a scientific measure of D&O risk.”
Those that manage exposure “have a greater chance of receiving more favorable terms and pricing for the Directors & Officers Liability insurance,” Rosenberg adds.
He says the newest trend in this space relates to mergers-and-acquisition cases, where both companies involved in the transaction can be sued. In fact, there is a 90 percent chance that the acquired company will be sued by its shareholders, Chubb says.
Despite this potential exposure, 26 percent of companies do not have a documented M&A protocol, which may help to improve their defense in court and/or result in a lower settlement amount, notes Rosenberg.
Additionally, 78 percent of the survey’s respondents say they’re not worried about being investigated for violating the Foreign Corrupt Practices Act, which is now more aggressively enforced by the SEC and the Department of Justice.
Those investigations and related fines, which can be spurred by suspicions of bribery of foreign government officials or politicians, could cost a company millions. D&O policies can cover defense costs and fines for non-willful violations of the act, Rosenberg adds.