This headline from the “Wall Street Journal” (July 1, 1976) illustrates the growing concern in boardrooms all over America about the danger of lawsuits against directors and officers of corporations. Two settlements in recent years show that this concern is not without foundation. One was the substantial sums obtained by plaintiffs who objected to the conduct of directors of the Penn Central Railroad. The other was the “Bar Chris” case, in which a trial court found directors responsible for material false statements in a registration statement, despite State laws protecting directors who rely on information given to them by competent officials. The decision of the trial court was not taken to appeal, and there was an out-of-court settlement.

Faced with a potential liability that could well financially destroy them, directors ask for insurance, and many companies do in fact take out liability insurance on behalf of their directors and officers. Thirty years ago Lloyd’s of London were writing such policies, but the volume of business was not substantial. By 1970 the total of sums assured in the United States had risen to over a thousand million dollars, and in the last five years there has been a startling increase even over this figure; an estimate would be five thousand million dollars. Lloyd’s underwriters still carry much of this business, although some American companies are also in the market. However, given the cautious nature of underwriters, both at Lloyd’s and elsewhere, it is not surprising that more applications are refused than accepted. The need is clear enough, and so is the risk of a claim. Anybody who suffers loss in a corporate enterprise is encouraged to seek redress from the directors, and there is no reluctance on the part of juries to award large sums by way of damages. Moreover, there is an increasing number of potential plaintiffs. Apart from third parties, shareholders are all potential plaintiffs, and today more and more people hold shares in corporations. Probably at least one-quarter of the population of the U.S. hold shares in public corporations, and yet, at the same time, there is a widespread belief in the anti-social nature of big business. To most people, big business and corporations are the same. Corporate behaviour does not discourage such a belief, and there is adequate reason for underwriters to fear ever-increasing recourse to the courts.

Directors’ and Officer Liability insurance is known shortly as “D. & O. Insurance,” and in the past has been limited to large corporations. Underwriters have been reluctant to accept applications from close corporations, partly because of the possibility that directors of small family corporations might not be appointed on the grounds of business experience or even efficiency. In the last year or so this caution on