Why are Companies Paying More to Insure Their Officers and Directors

Why are Companies Paying More to Insure Their Officers and Directors

Many companies in the United States choose to purchase insurance that covers their officers and directors if they or the company are sued. Premiums for this type of insurance have increased recently, jumping 104% in the first quarter compared with the same period a year earlier. There a number of different factors behind the increase, and companies are attempting to take steps to control costs.

Shareholder Litigation

There has been a recent rise in shareholder litigation that is affecting premiums. There is an increase in the number of lawsuits and the size of jury awards. Many lawyers anticipate a wave of more shareholder litigation relating to the handling of COVID-19 issues by officers and directors. There has been a spike in litigation related to cyberattacks and the #metoo movement. Companies also face litigation involving Environmental, Social, and Governing (ESG), and climate change issues.

Growth in Litigation-Finance Firms

In 2019, the highest number of securities cases (428) in history were filed in state and federal courts. This increase can be traced in part to financiers who bankroll litigation. These finance firms give plaintiffs money to pursue litigation in exchange for a portion of the settlement or award.

Cost-Cutting Measures

In the face of the extreme increase in insurance premiums, some companies are taking steps to cut costs as these premiums have become a significant expense in their line-item budgets. Some companies have decided to take on larger deductibles, meaning they are taking on a larger amount of litigation expenses head-on. Others are setting up maximum payout amounts and self-insuring to some degree. In April, Tesla CEO Elon Musk decided to not purchase insurance at all and instead offered up a personal guarantee. Musk personally agreed to cover the litigation expenses faced by any officers or directors. This is not a workable solution for many companies.

Contact an Experienced Attorney

If you have questions about your insurance coverage, you should contact an experienced attorney. Gregg Goldfarb has been helping the injured for over 20 years. Contact us online or call us at 305-374-7000 to schedule a free consultation.

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