Serving as a director on a corporate board used to command respect. Today, directors don’t take the jobs without a certain amount of fear.
Aggrieved shareholders have won large settlements against directors, in a few cases outstripping the insurance coverage protecting them.
The potential liability weighs heavily on prospective directors, participants in a panel discussion said Wednesday in Denver.
“If you have done your due diligence and are still wary, then don’t join,” said Kathy Cunningham, a director with Raindance Communications Inc., a publicly traded Louisville Web and audio conference company.
Directors who, in the past, may have zoned out during discussions of so-called directors’ and officers’ insurance policies now are paying closer attention.
Shareholder settlements are averaging between $5 million and $10 million, and the average insurance policy provides $30 million in coverage, said William McGinty, president and chief executive of the NASDAQ Insurance Agency, a corporate insurance broker.
Corporations often agree to cover legal costs and damages directors incur beyond insurance policies.
But those promises can vanish in bankruptcy.
Insurers are also increasingly rescinding coverage if they believe fraud is involved.
“We are seeing insurance companies being more aggressive with denial letters,” said Matthew D’Amore, an attorney at Morrison & Foerster, which sponsored the discussion.
Premiums for directors’ and officers’ insurance coverage went through the roof after the corporate scandals of 2001-02.
But this year, premium prices are down about 20 percent compared with a year ago, despite a third more claims, McGinty said.
“It isn’t rational,” he said.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
$18 MILLION
Total amount paid by 10 WorldCom directors to shareholders after the telecommunications giant filed for bankruptcy
$13 MILLION
Total amount paid by 10 Enron directors to investors after the energy firm filed for bankruptcy
Source: Denver Post research
