The best time to review D&O coverage? Now: in these especially challenging times, take these steps to ensure you have the protection you need and deserve.

• Author: Rosenberg, Evan
• Position: RISK MATTERS - Directors and officers

TODAY'S credit crisis has boards on high alert.

What organization today is not feeling the pinch of tight credit and a dismal economy? The fact is that most economic signs point to continuing pressure on an organization's bottom line. Unfortunately, for some organizations, increasing financial pressure could devolve into distress and even insolvency. Could that happen to your organization? Will the signs be clear and easy to see, or could the board be missing them?

A slide toward bankruptcy often happens slowly and the signs can be seen from afar, as has been the case with the airline industry. But, as we have seen recently, bankruptcy can also happen quickly, with little warning, almost appearing out of nowhere. It is in these sudden-insolvency situations that investors are especially fond of reacting to with lawsuits. Fortunately, your organization's D&O liability insurance program was designed to reduce its financial exposure--and your personal exposure--to lawsuits brought against its leadership team in certain situations, including bankruptcy. Right?

Well, that can depend on whether the D&O policy responds the way the board intended. Sometimes good intentions can be derailed. For example:

* An organization in financial distress or bankruptcy may not be able or willing to provide indemnification for its leadership team.

* If the organization's D&O policy names the organization as an insured (entity coverage), then the policy may be deemed an asset of the bankruptcy estate because it is owned by the organization. If this happens, directors run the risk of not having insurance coverage to help pay for defense and indemnity costs incurred as a result of a lawsuit.

* A financially weak D&O insurer may be unable or unwilling to pay the organization's claims.

Whereas the original purpose of D&O liability insurance was to offer protection for individual directors, over the years D&O policies have evolved to also include protection for employees, the corporate entity, outside directorship liability, employed lawyers liability, and other coverage extensions:

* D&O policies today typically include employment practices liability (EPL) coverage, so if a lawsuit included EPL-related allegations, overall coverage for directors may be eroded by the covered expenses of an EPL defense, as well as settlement or award costs.

* Entity coverage (defense of the company) can dilute coverage for individual board members.

* Coverage can be triggered by a...