Corporate America faces a flurry of shareholder lawsuits, internal investigations, and federal probes into the practice of back-dating stock options. Back-dating stock options is not necessarily illegal or wrong. The questions revolve mainly around the degree to which the practice was (or should have been) disclosed to shareholders and how companies accounted for the back-dated options.

Companies facing back-dating investigations or lawsuits should do two things quickly: 1) examine their Directors & Officers (“D&O”) policies; and 2) provide notice of claims or potential claims to their D&O insurers. Depending on the terms of its policy, D&O insurer may be obligated to cover the legal fees associated with back-dating investigations, lawsuits, and even criminal probes. To maximize the amounts the insurer will pay, companies must know their rights, understand the applicable law, and be diligent and aggressive in pursuing their (and their officers’ and directors’) policy benefits.

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