Publication Date


Document Type


First Advisor

Pecenka, Joseph O.||Andreasen, Haakon L.

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Management


Insurance department--United States; Insurance; liability--United States


Recently there has been an increase in the number of lawsuits initiated against top executives, accusing them of violating statutes, using inside information for personal gain, or acting negligently or improvidently in some aspect of corporate affairs. Corporations might wish to consider the possibility of protecting themselves and their executives against financial expenses involved in such litigation by obtaining Directors' and Officers' Liability Insurance (D & O). This study was undertaken to discover which insurance companies are offering D & O in the United States, to determine the accessibility of these policies for corporations and to examine the practices and experiences of insurance companies offering D & O. Current periodical literature was reviewed to examine the theory of law upon which executives liability and D & O are based. The contemporary basis for D & O and corporate concern over executive liabilities were reviewed. The National Industrial Conference Board, Prentice-Hall, Inc., and the Machinery and Allied Products Institute have published reports which are pertinent to this study. These reports were also reviewed to illustrate some diverse thinking which exists regarding the analysis of executive liabilities and D & O. A letter-questionnaire was sent to 426 insurance companies which were underwriting multi-peril business risks and paying at least one million dollars per annum on all claims. The purpose of the letter-questionnaire was to determine which companies in the United States were underwriting D & O. Awareness among insurance executives of the insurance companies which are offering D & O was also surveyed. The insurance companies were extremely cooperative; 92 per cent of the companies surveyed were represented in this study. Another questionnaire was utilized to learn the amount of D & 0 coverage which has been written for American companies, the reasons for accepting and rejecting D & 0 applicants and insurance companies' D & 0 experiences. This questionnaire was sent to those insurance companies which were thought to be underwriting D & 0. It was found that D & 0 is available from the following fourteen insurance companies: American Home Assurance Company; American Mutual Liability Insurance Company; American States Insurance Company; Bituminous Casualty Corporation; The Continental Insurance Companies; The Employers-Commercial Union Insurance Company; Employers Insurance of Wausau; Harbor Insurance Company; Liberty Mutual Insurance Company; Public Service Mutual Insurance Company; The St. Paul Insurance Companies; Scarborough & Company; Stewart, Smith & Company, Inc.; Underwriters at Lloyds, London. Nine of these fourteen insurance companies answered the D & 0 questionnaire. They indicated that they have issued 1,044 D & 0 policies; and that less than 10 per cent of the companies which complete an application are issued D & 0 policies. When accepting and rejecting D & 0 applicants, these insurance companies consider such factors as years in business, size and type of company, history of profitable operations and dividends to the stockholders, position in the industry, sound financial reports and integrity of the officers. Schedules or tables have been developed by six of the nine insurance companies for use in determining premium rates to be charged the D & 0 client. Due to the complexities of corporate law and other consideration it is advisable to consult a corporate lawyer or specialist in the area of D & 0 when considering the applicability of D & 0 for a particular corporation and its executives. There is some concern in regard to D & 0 being considered by the courts as being contrary to public policy If an executive is sued for some act which allegedly injured the public and is found guilty, it would frustrate public policy to reimburse the executive for his wrongdoings. The following recommendations for further research were made: an analysis of coverages and exclusions in D & 0 policies, public policy considerations, a code of ethics for businessmen, D & 0's psychological effect on businessmen, and other methods of indemnifying executive liabilities.


Includes bibliographical references.


v, 145 pages




Northern Illinois University

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