Protecting the Innocent Outside Director After Enron and Worldcom

International Journal of Disclosure and Governance

Volume 2 Number 2

Protecting the innocent outside director after Enron and WorldCom

Michael W. Early Received: 31st March, 2005

Chicago Underwriting Group Inc., 191 N. Wacker Drive, Suite 1000, Chicago, IL 60606, USA; Tel: +1 (312) 750-8804; E-mail: mearly@cug.com

Michael W. Early is the Assistant General Counsel of Chicago Underwriting Group, Inc. The Chicago Underwriting Group, Inc. is a subsidiary of Old Republic International Corporation that underwrites Old Republic’s professional liability and directors’ and officers’ liability insurance risks. Mike oversees the national handling of claims made against Old Republic insureds under director and officer and professional liability policies. Mike received his JD from Duke University School of Law and his BA (cum laude) from Miami University.

ABSTRACT KEYWORDS: Directors’ and officers’ (D&O) insurance, Enron, financial security of insurance carriers, independent director liability, securities claim trends, WorldCom

In the USA independent directors are being forced to contribute from their personal assets to settle out of securities claims brought against public corporations. In the context of the Enron and WorldCom securities litigation settlements, this paper reviews current trends in securities claims including: claim severity and frequency, accounting issues, increased government activity and regulation, and institutional investors as lead plaintiffs. The paper examines how D&O insurance could be used to maximise protection for independent directors and discusses: entity coverage, co-insurance, final adjudication language, arbitration clauses, and policies for individuals. This paper emphasises the importance of financially secure insurance carriers.

INTRODUCTION Protecting the innocent outside director is an appropriate purpose for directors’ and officers’ (D&O) insurance. (This paper focuses on D&O insurance for directors on boards of publicly...