After attending the PLUS D&O Symposium some years ago, several colleagues at Partner Re thought it might be worthwhile to provide D&O insurance professionals with historical overview of the evolution of Directors and Officers insurance (D&O) in the US marketplace.
This paper is intended for the insurance professional as an additional introduction to this increasingly relevant and ever evolving management liability product.THE ADVENTURE BEGINS Prior to 1933, there was no need for D&O, largely due to the lack of regulations surrounding the sale of securities and the lack of accountability placed on directors and officers.That all started to change after the stock market crash of 1929 triggered the Great Depression.As a result, several important acts were passed that increased financial regulation and made companies more responsible towards their shareholders and investors.While these acts did not initially generate a large demand for the D&O product, they have implications for directors and officers to this day.
The Securities Act of 1933 and The Securities and Exchange Act of 1934 The Securities Act of 1933 (The Act) was enacted by Congress in an attempt to eliminate some of the causes of the Great Depression.
The Act is also known as the “truth in securities” law.
The Act has two basic objectives: In order to achieve these stated objectives, the Act requires the registration of companies’ securities.
The registration process requires that the information provided is accurate; however, the Securities and Exchange Commission (SEC, which was created under the 1934 Act) does not guarantee its accuracy.
It is important to note that if investors suffer losses on securities found to contain inaccurate or incomplete information, investors do have substantial rights of recovery against the company (including its directors and officers) and the distributors of the securities.
Unless subject to an exemption, securities offered or sold to the public in the U. must be registered by filing a registration statement with the SEC.