Subprime/Credit Crisis And Government Bailouts: Impact On D&O/E&O Coverage

The current economic crisis, including the subprime lending crisis and the subsequent credit crisis, has resulted in hundreds of lawsuits and scores of government investigations seeking to hold someone – anyone – responsible for the billions of dollars that virtually evaporated in the past two years. The categories of defendants in these lawsuits are wide ranging: from the issuers of the securities backed by subprime loans, to the rating agencies that effectively put their stamps of approval on these securities. By some accounts, the exposure to the insurance companies that insure the defendants in these lawsuits (mainly directors and officers liability (D&O) and errors and omissions liability (E&O) insurance) could be as high as $8 billion.¹ Notwithstanding the federal government's continuing efforts address the liquidity vacuum characterizing the subprime and credit crisis, the lawsuits and market capitalization losses continue to mount.