High-profile corporate scandals have led to turmoil of US Directors’ and Officers’ Insurance (D&O), members of the International Underwriting Association (IUA) were told.
The IUA was told that a significant increase in the frequency and severity of securities claims had been seen over the past several years. It said in cases such as the collapse of Enron, claims were reaching up to billions of dollars.
Michael Thompson of law firm Edwards & Angell, said: “As a result of the corporate scandals and a lack of investor confidence there has been a record number of securities class actions by shareholders against corporate boards in recent years.
“D&O policies are certainly to the fore right now and I think they will continue to be over the next few years.
Thompson said the growth in shareholder litigation had led to a corresponding increase in attempts by insurers to annul policies believed to have been obtained through false applications.
He said such rescissions were typically based on one of two scenarios; either that a corporation falsely answered ‘no’ on a D&O application about knowledge of facts that could give rise to a claim, or that financial documents provided by an applicant contained false statements about a corporation’s financial condition.
Thompson said insurers had generally been able to rescind a policy where it could be proved that a wrong statement or omission in an application was significant enough that the policy would not otherwise been issued, or at least not for the premium charged.
“Insurers now are certainly more willing to consider rescission,” he concluded.
