D&O Market Trends
Insurance experts say laddering claims probably wont have a great impact on the directors and officers insurance market going forwardbut there continues to be a lot of pressure on the market, which is likely to become more evident in 2002, they say.
"There are still a lot of companies [which issued IPOs] that have not been sued," said Kevin LaCroix, president of Genesis Professional Liability Managers of Beachwood, Ohio, noting that while there were 896 IPOs from 1998-2000, only about 150 issuers have been named in laddering cases.
For the remaining companies still in business, whose renewal dates are between now and Dec. 6 (the date many believe is the date when the statute of limitations will run out), insurers may seek separate retentions for laddering claims, he said.
And for any company thats going to do an IPO in the future, D&O carriers will want to know if there are any commissions or arrangements for disposal of shares other than those disclosed in prospectus, he said.
Insurance experts agree that for other buyers of D&O insurance, the writing was on the wallfor higher prices and tighter termsbefore the laddering cases came up.
D&O underwriters were already dealing with much larger settlements, Mr. LaCroix said, noting that the events of Sept. 11 have intensified the need for price increases. While D&O carriers dont have losses directly related to the terrorist attacks, they rely on the same essential pool of capital from which attack-losses will be paid out"a pool of capital thats been significantly impaired," he said.
There has been a change in the D&O market, but "Id be hard-pressed to point to any direction in the D&O market that's happening because of the laddering cases," said Dan Bailey, an attorney for Arter & Hadden in Columbus, Ohio. He added, however, that the cases do "point out the dangeror the value, depending on what side you're onof entity securities coverage."
(Entity coverage was introduced in the mid-1990s as a way to deal with the issue of how to allocate judgments and settlement between insured directors and officers and the uninsured corporation under a D&O policy. Entity coverage solved the problem by adding the corporation as an insured for securities claimsproviding coverage whether or not individual directors and officers were named.)
Laddering claims demonstrate that for companies that bought entity coverage, the D&O policy can be eroded by claims against the company, reducing or eliminating coverage for individualseven those individuals who havent been named in lawsuits, Mr. Bailey said.
Joseph Monteleone, vice president for Hartford Financial Products in New York, said one trend that bears watching among D&O insurers, going forward, is the frequency of non-laddering claims.
"This year is shaping up to be the one with the greatest amount of securities litigation ever before and after [Private Securities Litigation] Reform Act, but a lot of that is laddering," he said, noting that almost all the cases in July and August were laddering cases.
"We may well see a significant drop in securities claims other than laddering" when totals for the year are determined, he said. He said its not yet clear whether there is actually less incidence of securities fraud or whether the trend results from the fact that the plaintiffs bar is devoted its attention to laddering.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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