Directors and officers spend too little time worrying about their liability insurance, says a CEO who has served on various boards.

Beth A. Stewart, CEO of Bernardsville, N.J.-based Trewstar Corporate Board Services, said board discussions about D&O liability insurance can amount to a once-a-year, 10-minute discussion. “The implications are, directors do not understand the D&O policies,” said Ms. Stewart, speaking at a session at the Professional Liability Underwriting Society's annual D&O Symposium in New York on Thursday.

But the policy documents are not easy to understand, she said recounting when she first read a D&O policy. “It's impossible. I'm fairly well-educated and could not figure the policy out, and I really tried.” She had the company whose board she served on hire an independent counsel “and asked him what are the things that could go wrong,” and how individuals on the board are covered.

“I don't think I'm speaking out of school to say, I don't think directors understand what they're getting into,” Ms. Stewart said.

Ms. Stewart said among directors' concerns is, if the “person next to you did wrong,” and is implicated, “when the SEC decides to investigate, will there be money to cover it? Will legal fees be covered before the final adjudication? Somebody needs to tell the directors, because the directors are not the experts.”

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Directors need to be better advised, said Samuel W. Cooper, a partner with law firm Baker Botts L.L.P. in Houston. “We need some combination of (chief financial officer), general counsel and consultant saying, 'These are the risks. Are we covering those risks in a way to be able to trigger the policy at an appropriate time.'?”

Bruce Angiolillo, senior litigation partner with law firm Simpson Thacher & Bartlett L.L.P. in New York, suggested that at the start of a defense of a claim, rather than perfunctorily notifying the insurer, it is preferable “to sit down with the carrier at the very beginning and have a conversation to understand” what the insurer believes is covered.

In most cases, he said, the insurer will have the view certain defendants are not covered, and there will be an allocation of liability to those parties. There may be wide disagreements at the outset, “but at least don't artificially stake out rigid positions” at the start, he said.