Insurers Boosting Liability Rates for Execs Due to Enron Collapse

Shareholder lawsuits stemming from the collapse of Enron Corp. are prompting insurers to raise the price of coverage for corporate executives and directors against claims of mismanagement.

Companies with market values of more than $1 billion face premium increases of more than 50%, according to Willis Group Holdings Inc., the third-largest insurance broker.

Mary Gardner, a risk manager at Sears, Roebuck & Co. in Hoffman Estates, Ill., said she is concerned about rate increases. Sears covers its directors and officers through National Union Fire Insurance Co., a unit of American International Group Inc.

Even before the litigation targeting Enron and its former auditor, Andersen, insurers were driving up rates to recoup losses from the Sept. 11 terrorist attacks and from securities fraud lawsuits after the plunge in dot-com stocks.

Now they’re raising prices more, anticipating record Enron-related settlements.

In 2001, a record 500 cases were filed against companies and their directors and officers, said James Newman, executive director of Securities Class Action Services, which publishes Securities Class Action Alert. In the five years through 2000, there were 200 to 300 class actions filed each year.

The average settlement also has grown. In 2000, the average settlement was $25 million, up from $17.5 million in 1999.

Over the next year, there are cases that may settle for about $500 million, Newman said.

Now, companies that have paid $5,000 to $10,000 for every $1 million of coverage for the first $50 million are paying $25,000 or $30,000 per $1 million for the same coverage, said Susanne Murray, leader of the directors and officers practice of Willis Group.