Why Defense / Investigatory Counsel Should Be Aware Of Insurance Issues Relating To Stock Option Backdating

March 27, 2007

1. Counsel may owe a duty to the client to identify and preserve the client's rights with respect to all potentially available insurance coverage (even if not specifically retained to do so).

2. The potentially applicable Directors & Officers and Employment Benefits liability policies are claims-made policies; failure to report a claim on time can result in a loss of coverage.

3. Delay in reporting a claim may result in loss of coverage for any pre-notice fees and costs.

4. Failure to disclose a claim or potential claim at renewal could lead to rescission of the new policy.

5. Because many insured individuals as well as the company may have rights under the policy, counsel must be aware of the client's rights in the event of competing claims against insufficient policy limits (particularly if the company is not able or permitted to indemnify the individual insured).

6. Investigations should be conducted, and lawsuits defended and resolved, so as to maximize coverage and avoid excluded liabilities.