The Enron Corp.'s $365 million agreement to settle claims from employees who lost retirement plan money when the company stock plunged should alert many corporate risk managers to beef up their fiduciary liability insurance==if they can get it, two experts said.
Their comments followed Monday's announcement by Secretary of Labor Elaine L. Chao of a settlement giving the Enron 401(k) and employee stock ownership (ESOP) plans a general unsecured claim of $305.36 million in Enron's bankruptcy.
The proposed settlement also gives Enron's cash balance plan a claim of $50.89 million.
For companies, the Enron situation should be a "wake-up call" said Lynn Sarko, an attorney with Keller Rohrback law firm in Seattle, who represented Enron employees.
He said that Enron had only $85 million in fiduciary insurance that was eaten up by a prior settlement of nearly $87 million. The insurance was with Federal, a part of Chubb, and Aegis, covering claims against the Enron board and employees and executives on the firm's retirement plan committees.
That left the non-settling defendants, one of which was Enron Corp., with no insurance, according to Mr. Sarko.
"I think it will make companies revisit the amount of fiduciary insurance that they carry. One of the striking things is that so many companies are carrying an inadequate amount of insurance given the size of their plans. Plans that have over a billion of plan assets may only carry $25 million or $50 million of fiduciary insurance," he predicted.
Mr. Sarko opined, "This will cause risk managers and companies to take a second look at the amount of insurance that is carried."
But getting coverage may be difficult in the opinion of Jay Desjardins, national practice leader fiduciary liability insurance for Aon brokerage.
"Insureds may want higher limits, but it may be harder to do so," he said. Mr. Desjardins said insurers have been very careful in underwriting fiduciary risks in the first place and now "they will be very conservative."
He said that over the past three years the cost of $1 million in fiduciary insurance has climbed from $5,000 to $20,000 or $50,000 per million of coverage.
Mr. Desjardins also said, "Many carriers that offer this on a primary basis often have capacity of $25 million but are only willing to put up $10 million or $15 million on any given risk.
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