The Times: Cost of directors' cover falls: “several multimillion-dollar cases — such as Vivendi and Shell — prepare for court” (ShellNews.net)

By Christine Seib

16 August 2004

THE cost of insuring directors against legal actions by disgruntled shareholders has begun to fall after three years of crippling rate rises.

But insurance brokers gave warning that the reprieve may only be temporary as several multimillion-dollar cases — such as Vivendi and Shell — prepare for court.

Mark Hardinge, managing director of Aon Professional Risks, one of the world’s biggest insurance brokers, said that cut-price cover was being underwritten by new insurers based in Bermuda but with offices in London and New York. “There are several new insurers that are undercutting the established players by as much as 30 per cent,” he said.

“But a few big payouts are likely to cool their ardour and could force rates up again.”

A drop in the cost of directors and officers’ liability insurance, however temporary, will be welcomed by executives. There are hopes that the Government will introduce a cap on the amount of money that directors can be held liable for. However, it appears increasing likely that legislation capping directors’ liabilities will not be introduced until after the next general election at the earliest.

Industry leaders want legislation to cap directors’ liability in cases such as the neardemise of Equitable Life, which led to a £3.2 billion lawsuit against the former board. The leaders complain that it is hard to attract good executives because of fears that they will face legal action if the company fails or its share price plunges.

Stefan Martin, an employment partner at Allen & Overy, the City law firm, said that non-executive directors in particular were concerned.

“In their severance terms they often push the company to maintain their (directors and officers’) cover for six years after their departure in case someone brings an action,” he said.

Directors and officers’ insurance covers executives against litigation related to the discharge of their duties.

During the past three years the cost of the cover rose by up to 500 per cent as insurers were hit by thousands of securities class-actions.

However, with an influx of new insurers, premiums were finally coming down, Mr Hardinge said.

The insurers that are offering cheaper cover include Axis, Awac, Arch, Quanta and Darwin, all of which are based in Bermuda.