In the wake of Enron's collapse, Directors and Officers (D&O) insurers may demand full details of all off-balance-sheet vehicles before agreeing to provide cover, according to law firm Reynolds Peter Chamberlain (RPC).
RPC expects insurers to include a standard question on their proposal forms in future requesting full disclosure of such vehicles.
RPC partner Ed Smerdon said: "D&O insurers had previously relied on company accounts as a basis for pricing the risk of the insured. Like others in the financial community, they are increasingly concerned that the company accounts just aren't a true reflection of a company's health."
D&O insurance is used to pay for legal costs defending directors in lawsuits, among other things. Enron's directors are believed to have had comprehensive D&O cover, so insurers may have to make substantial pay-outs.
Regarding Enron Smerdon said: "It doesn't take great predictive powers to forecast that the Enron scandal is going to result in some pretty scary defence bills. Whether D&O insurers have to pick up the tab on Enron or not they certainly won't want to be put in such a situation again in the future."
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