Protecting the board.

• Author: Anthony, Jamie R., Jr.
• Position: Corporate directors' risk coverage

Here are 10 of the most frequently asked questions about D&O insurance -- what directors want to know, and should know, about their risk coverage.

Keeping your business life separate from your personal life is nearly impossible if you are a director of a corporation. Because of the fiduciary nature of your responsibilities, many decisions that you make as a corporate director fully expose your personal assets to the threat of litigation.

When directors are named in lawsuits they are held personally liable for the damages claimed. Obtaining directors and officers (D&O) insurance is an important step in protecting personal assets in the event of litigation. At Willis Corroon Financial Services Corp., we meet regularly with corporate directors to discuss D&O liability issues. Because of the complexity and personalized nature of this product, it is not surprising that directors raise a host of questions and concerns.

To help foster a clearer understanding of how D&O coverage works, we've put together a list of answers to the 10 most common questions that directors ask us.

1. How vulnerable am I as a director to the possibility of being named in a lawsuit?

   According to the National Association of Corporate Directors, the number of lawsuits brought against directors has been rising steadily at an annual rate of 10%. This trend reflects increasing concern with management accountability on the part of shareholders, employees, and others with a stake in the affairs of a corporation. It also suggests that the court system has become the forum of choice for these parties in settling matters of corporate governance. Other key factors fueling the growth of D&O litigation include:

   * Emergence of D&O litigation as a lucrative growth industry for plaintiff's lawyers who proactively pursue and initiate claims. Law firms representing shareholders, for example, which account for nearly one-half of the lawsuits brought against directors, typically receive up to one-third of the settlement in a class-action suit -- providing them with a strong financial incentive to become D&O specialists.

   * Linking of corporate enterprise with a wide range of complex social issues, including the environment and sexual and racial discrimination. This has created a brooder spectrum of highly charged boardroom issues. Today's directors are more involved in making decisions on issues of concern to a larger audience of corporate constituents -- increasing the number of possible claimants.

   * Severity of financial consequences for...