NU Online News Service, Oct. 11, 2:12 p.m.EDT

European compa­nies doing business in the U.S. are vulnerable tosecurities legal action in the U.S., especially if their shares aretraded on U.S. exchanges and that number is rising, according to areport from Advisen.

The number of lawsuits reflects a trend where shareholderlawsuits filed in European courts are on the rise, prompting demandfor directors and officers coverage, according to an Advisen study,“EuropeanD&O Insurance Market: Reforms Cause a ShiftingLandscape.”

Advisen says the number of securities lawsuits filedagainst European companies and their share­holders in U.S. courtshas mushroomed in recent years—from 15 suits in 2005 to 44 in 2008;50 in 2010; and at an annualized rate of 52 in the first quarter of2011.

Growth in new suit filings occurred in 2010 and first-quarter2011 despite the falloff in credit crisis- and Madoff-relatedsuits, which dominated in 2008 and 2009. Of all suits filed since2005, 68 percent were filed since 2008, according to Advisen.

The days when cases were dismissed because the defen­dant was aforeign company and subject to foreign laws, Advisen says, areover. As globalization of business models goes forward, so doexposures to jurisdictions around the globe—with the U.S. courtsystem being the leading concern.

Most large companies in Europe have some form of coverage fortheir directors and officers, the study finds. Many directors arerefusing to serve on boards without adequate coverage in place.

Despite the growing demand, the perceived level of D&Ocoverage needed varies among European countries. What’s more, mostmid- to small-sized public companies remain without it, Advisensays.

This compares to about a 100-percent rate of U.S. publiccompanies with coverage. The relatively lower penetration rates inEurope among smaller public companies represent huge growthpotential for providers of D&O insurance policies, Advisenobserves.

As is currently the case in the U.S., D&O insurance is alsovital for board members of private companies—and their Europeancounterparts will soon demand protection as well.

The D&O market in Europe is estimated by Advisen to havebeen worth €1.37 billion ($2 billion) in written premium in 2008,up from €1.01 billion ($1.25 billion) in 2004.

In con­trast, Advisen estimates the U.S. D&O market to havebeen about €4.7 billion ($6.8 bil­lion) in written premium in 2008,down from €5.85 billion ($7.25 billion) in 2004.

During this period, the European D&O market demonstrated anoutsized compound annual growth rate (CAGR) of 7.9 percent in termsof Euros, despite a soft global commercial insurance market due toovercapacity. This growth reflects an increase in the overallD&O market in Eu­rope, and not individual premiums.

The U.S. market, on the other hand, shrunk during this pe­rioddue to the soft insurance market, causing premiums to fall.

Shortly after the emergence of the economic crisis, and more soin 2009, Advisen notes that D&O premiums for financialinstitutions in Europe spiked—because the financial services sectorsaw the majority of D&O claims.

For non-financial sector European companies D&O premiumshave been flat, to slightly lower over the past couple of years,Advisen says. This is a result of the global soft insurance market.Premiums for the financial services sector have settled since theinitial spike.

A call for stricter governance in Europe has catalyzed thecreation of new codes and greater transparency. The EU’s “greenpaper” addresses the composition and effectiveness of the board ofdirectors and defines the role of the chairman, board evalu­ation,remuneration considerations such as mandatory disclosure, and theneed for a risk management process for all companies, Advisensays.

While common in the U.S., class action lawsuits are virtuallyunknown in Europe, Advises says, adding that the legal systems ofEuropean countries provide fewer avenues for shareholders tocollectively pursue claims against companies and their directorsand of­ficers.

With European “collective action” lawsuits, plaintiffs act inunison to bring a suit through shareholder associa­tions,representative litigation or other means, according to Advisen.

Collective action proceedings in Europe have become more commonand large payments more widespread, but the land of “milk andhoney,” for trial lawyers and plaintiffs is still the U.S. Itslegal system makes it easier for plaintiffs to pursue cases, andcontingency fees make it nearly risk-free, Advisen says.