John F. McCarrick, a partner at law firm White & Williams L.L.P. in New York and chair of its directors and officers group, has been practicing law for more than 25 years. He represents domestic and international professional liability insurers in insurance coverage and liability issues arising from complex antitrust, customer, shareholder and bankruptcy litigation. He also works with reinsurers and brokers on compliance and corporate governance issues. He spoke with Business Insurance Senior Editor Judy Greenwald about the environment for D&O claims. Edited excerpts follow.

A: The most significant changes to the landscape are in the form of increased regulation, whether by the (U.S. Securities and Exchange Commission) or as a result of the whistle-blower provisions of (the Dodd–Frank Wall Street Reform and Consumer Protection Act).

The other area that folks should be watching carefully is in the bankruptcy context. Bankruptcy-related claims have been around a long time, but what has been happening more recently has been increasing activity by opportunistic investors who seek bankruptcy proceedings where there is an intact D&O insurance program. These investors buy up for pennies on the dollar creditor claims and then leverage those creditor claims into lawsuits against the former directors and officers of the now-failed company, seeking to monetize the available D&O insurance.

A: Directors and officers frequently use a rear view mirror to evaluate their protection needs. I believe in a rapidly evolving litigation and regulatory environment, that is not enough. It's just as important to be evaluating the developing areas of D&O claim frequency and severity, the increasing activism of the SEC, and the abundance of parties who historically were not sources of D&O claims who are now seeking to take advantage of available D&O insurance.

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A: We are in a period of lessening frequency of large claims, but much more severity of those claims, both in terms of settlements and defense costs. I think it also will be interesting to see whether the SEC's new policies regarding admissions of illegal conduct have a material effect on the timing or amount of shareholder D&O settlements.

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