Directors and officers of UK and European companies face an increasing personal risk of litigation or regulatory action, according to international law firm Fried, Frank, Harris, Shriver & Jacobson.
Fried Frank said it believed most directors and companies have failed to reassess their D&O coverage with a view to increased risks.
“Many companies focus on the cost of their D&O liability insurance coverage,” said Fried Frank partner Robert Juceam at a conference co-hosted by Fried Frank and ACC-Europe, the European affiliate of the Association of Corporate Counsel.
“But a cheap policy that doesn’t pay, and leaves directors exposed, is very expensive.
“Furthermore, innocent directors who share coverage, particularly as part of a combined policy with their companies, may find that the coverage is not there when they really need it.
“The company may have exhausted the limits, or the insurers may seek to avoid liability under the policy based on alleged misrepresentations on the application form or misconduct by other officers or directors.
Fried Frank partner Karen Wiedmann warned directors that the introduction of Sarbanes-Oxley meant the ‘up the ladder’ reporting provisions and internal control provisions had put directors in the firing line for possible claims and litigation.
The company also warned that directors of non-US companies were now vulnerable to class actions launched within the US, reinforcing the need for companies to review their D&O arrangements.
