Enron executives are cocky enough to believe they aren’t going to jail, but their insurers aren’t so sure.
The group of insurance companies that offer Enron its Directors-and-Officers insurance have demanded – and gotten – guarantees that their payouts will be repaid if any Enron officer or director is indicted, tried and found guilty of criminal charges.
“Enron petitioned the bankruptcy court to allow advances from their insurance companies on D&O for legal defense costs,” said Sherryl Pierre, chief operating officer and partner with Travers O’Keefe, an insurance consulting firm. “But at least one insurer has required Enron to repay the advance if any criminal trial resulting from these investigations results in a guilty verdict.”
In other words, the insurers are taking steps now to protect themselves against the possibility that Enron’s officers and directors may end up in jail.
Although Enron has total D&O liability coverage of more than $300 million from several different insurers, according to Pierre, there are many exclusions that may keep the insurers from having to pay out anything at all.
“The policies will not pay any loss on any claim based on any act of fraud or any criminal act,” Pierre said. “The policy will pay legal defense expenses, but not if guilt is established in a criminal court.”