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Derivative litigation prompts some firms to reconsider Side A coverage


Concern about potentially large derivative settlements is leading more publicly traded companies to reconsider their Side A directors and officers coverage, observers say.

“There hasn't been a significant percentage of insureds that are increasing limits” as more derivative litigation has been filed, “but there are those who have been considering additional Side A limits on a case-by-case basis,” said Steve Boughal, New York-based vice president and chief underwriting officer of Hartford Financial Products, a unit of The Hartford Financial Services Group Inc.

“Clients are going to ... think seriously about increasing those limits because derivative actions, depending on the circumstances, are good candidates” for Side A D&O coverage, said Phil Norton, Chicago-based president of Arthur J. Gallagher & Co.'s D&O professional liability division, who said there is plenty of capacity available.

The market is likely to be receptive to such requests “depending upon the individual risk there,” Mr. Boughal said.

Derivative litigation has led to “some pretty intense negotiations between brokers and insurers as to the scope of what's covered for derivative suits,” including plaintiff attorney fees, said Will Fahey, New York-based senior vice president of Zurich North America's management liability group.

“It's a thorny issue that the industry needs to find way to address for the insured, without encouraging the plaintiffs bar to bring more frivolous litigation,” Mr. Fahey said.

Courtney C.T. Horrigan, a partner at Reed Smith L.L.P. in Pittsburgh, said she has counseled clients for the past several years to get an explicit agreement from insurers that plaintiff attorney fees will be covered as part of settling a derivative suit.