As stock markets around the world fall, the demand for directors and officers -- D&O -- liability insurance is rising.

Mark Herman, president and chief executive officer of ACE Bermuda, said ACE, which has a specialist division dealing with D&O, is seeing more business in the current financial climate.

"When stock markets drop, people realise they are more exposed than they thought and some realise they don't have enough premium,'' he said.

Mr. Herman, who has worked in the field since 1983, said there is a direct correlation between falling share prices and lawsuits against directors and officers, particularly in the highly litigious US: "A drop in stock price is what drives the lawsuit and the amount of the drop is what determines the damages sought.'' If investors feel a fall in stock prices can be attributed to negligence, mismanagement or any failing on the part of a company's directors or officers, they file suit for damages, based on the amount they feel they have lost. D&O lawsuits emerged in the early to mid-1980s, the era of big company takeovers.

In the US lawyers who specialise in this type of business may follow stock prices and where they see a sufficiently large drop they will follow it up with the investors and put together a lawsuit claiming damages from those running the company. So directors and officers of publicly quoted companies can be vulnerable at any time, even if they have not acted improperly.

While this is largely a US phenomenon, Mr. Herman feels it may increase in other parts of the world as more international companies float on the US stock exchange and legislation in other countries places greater responsibility on company heads.

Some of the current lawsuits have arisen or are arising from the volatitlity of the new technology and dot.com companies. ACE has tended to avoid these types of companies. Technology companies have products with a short life span so are difficult to manage, in terms of the stock price, in the long term as continuity cannot be guaranteed.

The rise and fall of the dot.com companies has translated into stock volatility. And because they are so new they are difficult for an underwriter to evaluate for D&O cover, there are no historical fundamentals.

"Underwriters who have written a lot in dot.coms are very vulnerable now as the companies fall,'' Mr. Herman said. "Those who wrote companies that went up without solid fundamentals, built on hype, will be in trouble because there will be lawsuits.'' ACE concentrates on large volume liability, with a minimum of $25 million, which allows the company to be more efficient than covering a lot of smaller amounts of business.

"If a claim comes in, it is big so we can focus more easily. We have made our business low frequency, high volume.'' D&O premiums rise He also feels being based in Bermuda allows ACE to be more flexible in what it can do than onshore insurers, and to create products in this field that cannot be created in the US.

Through CODA, an ACE Bermuda subsidiary, a policy is offered that is designed to give comprehensive financial protection to directors and officers if their company fails or refuses to indemnify them, or if traditional insurance programmes fail to respond.

ACE also offers seamless add-on policies in the D&O field. Things covered include: fiduciary liability, employment practices, crime, bond, errors and omissions, excess fiduciary liability, excess employment practices, excess professional errors and omissions. All or any of these things can be additional or separate to a CODA programme.

Mr. Herman said D&O is a mature market now, but he expects growth to come from people buying higher levels of coverage as a result of larger volume lawsuits.

Supplemental growth will come as there is more blending of different types of related cover within the employment field.

Reaping the benefits: Mark Herman of ACE Bermuda