An important piece of the securities class action puzzle is directors and officers liability insurance (“D&O insurance”). Due in large part to the surge in shareholder claims severity over the past few years, the premiums paid by companies have skyrocketed. According to a 2002 survey by Tillinghast-Towers Perrin:
1) Companies paid nearly 30% more for D&O insurance in 2002 (a similar increase occurred in 2001);
2) Although claim frequency and severity for most type of claims has stabilized, the average indemnity paid for shareholder claims has increased to $23.35 million, compared with $17.8 million in 2001, and $9.62 million in 2000; and
3) There was a decrease in the D&O average policy limits for the first time in 8 years (which may be a result of the dramatic rise in costs).