The financial crisis of 2008 led to a wave of federal and state investigations into the events giving rise to the crisis. These in turn have spawned shareholder derivative suits and similar private litigation. Because of the staggering economic stakes and the prospect of criminal liability for the individual directors and officers involved, the companies and individuals involved in these proceedings have spared no expense in defending them.
Directors and officers (D&O) insurance is purchased for the purpose of protecting individuals and the entity in such instances. Policyholders have claimed hundreds of millions of dollars in coverage under D&O policies in the past three and a half years. One hotly disputed coverage issue involves the attorneys fees incurred in defending investigations or other proceedings that might not meet the definition of “claim,” either due to their nature or their timing. The definition of “claim” has always included lawsuits, and often “formal or informal administrative or regulatory proceedings.”