Canadian Underwriter

Apparent lack of concern over possibility of directors and officers being sued disconcerting: Chubb survey

June 18, 2012   by Canadian Underwriter

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Past lawsuits and increased merger and acquisition (M&A) activity have done little to curb the apparent, “disconcerting” lack of concern among directors and officers about the possibility of being sued.

Public company executives may be in for surprise lawsuits if findings from the new Chubb Public Company Risk Survey are any indication. Conducted by Pollara, results are based on telephone interviews with decision-makers at 145 public companies in the United States and Canada.

More than 80% of respondents believe it is unlikely they will be sued, notes a press release from Chubb. The “general lack of concern is disconcerting,” says Evan Rosenberg, senior vice president and global specialty lines manager for Chubb.

Past trends should cause company executives to be careful, Chubb notes. In fact, the directors and officers of almost 23% of the public companies surveyed have already been sued.

In addition, some company directors and officers (D&O) policies cover M&A-related lawsuits and, therefore, any increase in M&A activity may increase the likelihood of a related lawsuit. Chubb notes that M&A activity is reported to have increased more than 14% last year, and 64% of the survey’s respondents have been involved in a merger, acquisition or restructuring over the past two years.

Finally, enforcement of anti-bribery laws south of the border is increasing the exposure of directors and officers to future suits by shareholders, regulators, customers, vendors and competitors.

The executives’ apparent lack of concern about litigation may be translating into a lack of preparation. Chubb reports that 26% of surveyed companies do not have documented merger and acquisition protocols, and have no plans to develop them in the next 12 months.

“While M&A-related lawsuits may be covered by the company’s directors and officers liability policy, documented protocols may help improve the company’s defence in court or result in a lower settlement amount,” Rosenberg suggests.

“Companies that actively manage this exposure have a greater chance of receiving more favourable terms and pricing for their directors and officers liability insurance.”

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