NU Online News Service, Aug. 13, 2:19 p.m. EDT
Despite research reports showing escalating numbers of securities lawsuits filed by government enforcers–such as the U.S. Securities and Exchange Commission–a buyer's market continues for directors and officers liability insurance.
Carriers are unveiling new forms and endorsements, including long-sought coverage for regulatory investigations.
Louise Pennington, managing principal at Integro Insurance Brokers in New York, noted that even in spite of passage of the Dodd-Frank bill, there has been "a very recent expansion of coverage in the D&O insurance marketplace" to address the costs of responding to informal regulatory investigations.
"Normally, when regulations come out, as when Sarbanes-Oxley did, carriers respond by constricting and contracting their policies quite significantly," she observed. Uncharacteristically, "we have now gotten alignment of a broadening of coverage in a very significant regulatory area, at the same time that we've gotten a large expansion of government enforcement coming out in this [Dodd-Frank] bill," she said.
Ms. Pennington told National Underwriter that carriers started unveiling coverage for informal investigations, sometimes referred to as pre-claim inquiry coverage, within the last few months, putting some introductions in the late-April/early-May timeframe.
In an article featured in the Aug. 9 edition of NU's E&S/Specialty Lines Extra, a bi-weekly e-newsletter on trends in the specialty lines sector of the property and casualty insurance industry, Ms. Pennington goes on to give a historical perspective on the evolution of coverage. She noted that past coverage grants for regulatory proceedings applied only to formal probes, such as those triggered when the SEC issues a Wells Notice to a D&O insured.
"What has always been problematic is what happens in the event of informal investigation," she said, noting that the SEC and other government entities have the right to "essentially poke around" in a company's books and records and interview employees to amass information that may later fuel formal investigations.
Clients that have not been through that process may not necessarily appreciate that such informal investigations can take weeks, months or years–"and that translates into potentially enormous defense costs for an insured," which are not covered by D&O policy triggers requiring formal probes, Ms. Pennington pointed out. With the recent enhancements, terms such as "informal investigation" and "pre-claim inquiry" are becoming part of the definition of claim.
This week's E&S Extra also features a related article on securities litigation trends, such as:
o Statistics on securities litigation compiled by New York-based Advisen, including suits filed by the SEC.
o Broker views on D&O pricing conditions.
o Views of a lawyer and a directors and officers liability insurance carrier representative, who describe trends they believe will fuel more D&O claims as the economy improves.
The entire Aug. 9 edition of NU's E&S/Specialty Lines Extra e-newsletter is available at http://www.property-casualty.com/Newsletters/ESextra/Pages/August-9-2010.aspx.
To sign up to receive the E&S e-newsletter in your inbox every two weeks, go to the e-newsletters link on National Underwriter P&C's website, www.property-casualty.com.
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