Directors' new attitude toward D & O insurance: are you--and your assets--adequately protected? More directors than ever are interested and engaged in knowing the answer.

• Author: Weiss, Stephen J.
• Position: D & O INSURANCE

AFTER YEARS OF HEADLINES highlighting claims against directors and officers, many directors have determined that they need to be more involved in ensuring their D & O insurance is up to par. Gone are the days when they would accept on faith that they had sufficient coverage. Today, most directors realize they should be engaged in protecting their assets, which includes more than just asking if their companies maintain D & O insurance.

What steps are they taking? What can you do to protect your assets? Plenty.

1. Arm yourself with information

   Directors should ask about the specifics of their D & O insurance program. For instance, what is the scope of coverage, what constitutes a "claim," and who is an "insured"? It may be helpful to pose possible claim scenarios and ask whether you would be covered. For instance, are losses arising out of an SEC investigation covered? What happens to your coverage if your company declares bankruptcy?

   Other important questions concern your company's D & O insurance program's limits:

   * What is your company's current limit?

   * Why was that limit chosen?

   * Would the limit be sufficient if the company were hit with a securities class action claim?

   * Have there been changes in the company's market cap or other factors that could affect the sufficiency of your limits?

   Failing to have sufficient limits could result in an out-of-pocket payment by the directors, like that paid by certain outside directors of Just for Feet Inc., which totaled almost $25 million.

2. Request an independent expert review

   Directors should request an independent review by professionals who specialize in D & O insurance to ensure that their program provides the best coverage available. Such professionals should be independent, meaning that they are not the primary party responsible for structuring the program and contracting with insurers, and highly experienced, meaning that they review scores of policies each year, not simply answer a few questions here and there in conjunction with their main practice.

   The request for an independent expert review should be made each year. Market conditions change from year to year. It is now possible to obtain improvements that were unavailable last year. In addition, new insurers are entering the market and existing insurers are offering new policies. As a result, if your company renews its policies without considering alternatives and without fresh negotiations, you most certainly will not have the maximum...