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Directors and officers liability insurance premiums more than doubled between 2000 and 2003 because of accounting scandals at Enron Corp. and WorldCom Inc. and the fallout from the dot-com meltdown. Finally over the last couple of years, they have declined 30% from their peak in 2003–and insurance professionals predict that fees will fall another 10% in 2007. But after all the good news of the past year, there is one disturbing blip on the radar that may not be causing problems now, but could prove to be troublesome, particularly for individual executives and directors, in the future.

That blip is the surge in shareholder lawsuits over backdating options. To date, there have been 144 derivative lawsuits filed against about three-quarters of the companies that have announced government investigations or internal investigations into backdating options, according to insurance research firm Advisen Ltd.–and observers believe more are on the way. “The monetary awards associated with these suits are usually small to non-existent,” says Dave Bradford, the editor-in-chief at Advisen. “But the legal expenses can be very high.”


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