Alarming hikes in the costs of litigation against directors and officers (D&O) -- particularly shareholder litigation -- as well as widespread concerns about high-profile bankruptcies and the quality of corporate accounting and financial reporting are among the principal reasons for a dramatic increase (29 percent) in D&O liability insurance premiums last year, a recent survey says.
Tillinghast-Towers Perrin's 2001 Directors and Officers Liability Survey, which included 2,130 participants of varying sizes, most in the U.S. and Canada, provided a series of findings:
* D&O claim frequency remained stable, yet severity generally increased, especially for certain types of claims. Among closed claims overall -- excluding those closed with no payment -- U.S. participants paid an average of $5.65 million to claimants, up more than 75 percent from the 2000 survey. The average indemnity paid to shareholder claimants was at an all-time high of $17.18 million, compared with $9.62 million last year.
* The technology and biotechnology sectors, firms with a recent initial public offering and those experiencing financial distress were hit especially hard by increases.
* Discrimination in employment was again cited as the most frequent D&O claim issue, accounting for 46 percent of employee claims and 27 percent of claims overall.
* Issues related to financial disclosure continued to be the most common among shareholder claimants, representing 39 percent of shareholder claims and 9 percent of claims overall. Disclosures of publicly traded companies are an area of increased concern among D&O insurers due to the significantly higher cost of claims related to such disclosures, including those associated with IPOs.
The sharp rise in D&O premiums last year is far...