Should a public company buy Directors and Officers insurance?
Yes. In our view, there is no question about it. That doesn’t mean that everyone agrees with us. Those who advocate not buying D&O insurance assert that a D&O policy is a ‘pot of honey’ that attracts the lawyers driving securities fraud claims, and that if no insurance is available claims are less likely to be brought. Although the assertion is logical, it can’t be proven correct. From our point of view, this logic does not take some important factors into account. First, most corporations have the capacity to pay large judgments or settlements even if they don’t have insurance. Second, securities fraud claims are often brought quickly and before the plaintiffs’ lawyers know whether the defendants are insured. We are not aware of any case that has been dropped because of a lack of insurance. Third, insurance is very useful to the corporation when it is sued. Although we don’t believe that the question of whether to sue turns on the existence of insurance, we do think that the amount of
