Policyholder Perspective, Winter 2007-2008

In this issue of Policyholder Perspective:

• D&O, E&O and Credit Risk Insurance Policies Are Likely to Play a Big Role in the Mortgage Industry Crisis

From a liability and insurance standpoint, the recent credit crisis relating to mortgage-backed securities and “subprime” lending is one of the most significant happenings in recent years. The liabilities associated with this crisis potentially dwarf the liabilities associated with stock option backdating. Shares of 58 financial institutions have lost at least 40% of their market value and three high-profile bankruptcies have been filed already.

As of December 2007, at least 73 lawsuits had been filed, including 41 securities fraud class actions, 12 relating to allegedly fraudulent trade practices, 7 Employee Retirement Income Security Act (“ERISA”) class actions, 4 derivative actions, 4 underwriting malpractice cases, a banking malpractice case, an auditing malpractice case, and a legal malpractice case. The Securities and Exchange Commission (“SEC”) has opened at least 12 investigations into potential securities fraud with respect to mortgage-industry losses; regulators have probed into predatory sales tactics used by mortgage lenders; the New York Attorney General has started investigating inflated appraisals; and the European Union has announced an investigation into rating agencies.

• Recent Case Developments
  
  
• Other News

Compagnie Europeenne d’Assurances Industrielles SA (“CEAI”), a London Market insurer which is in a solvent scheme of arrangement, has announced a bar date of February 25, 2008, by which all claims must be made. Failure to submit a claim “will result in the relevant Creditor’s Claims being deemed to have been satisfied in full, and in that Creditor having no entitlement to payment in respect of such Claims.”

Policyholder Perspective, Winter 2007/08 (pdf)