Companies need to discuss with their directors and officers liability insurer whether it would exclude coverage for admitting wrongdoing in settling a case brought by the U.S. Securities and Exchange Commission.
Firms “need to have a discussion now with their D&O insurer as to just what the insurer's position would be with regards to an admission of guilt,” said Joseph P. Monteleone, a partner with Tressler L.L.P. in New York. “It behooves both sides to address (the issue) clearly before they're faced with the situation.”
One strategy companies may follow is “trying to stay closer to carriers on the defense side, getting agreement on strategy” and aligning themselves more closely with the insurer's interests, “because an admission of guilt clearly is going to drive a wedge” between the insurer and the policyholder, said Ann Longmore, New York-based executive vice president of FINEX North America, a unit of Willis North America Inc.
A U.S. Securities and Exchange Commission policy requiring defendants to admit wrongdoing could lead to higher defense costs, as well as higher directors and officers liability insurance rates.