Martha Stewart's Omnimedia Board May Face Litigation, Directors May Lose D&O Coverage, Insurance Law Expert Notes
CAMARILLO, Calif., March 9, 2004 -- "While loyalty to company founder Martha Stewart may be laudable, Omnimedia's board has added to the company's woes through its actions," says David Wood, co-founder of Wood & Bender LLP, the country's leading insurance policy enforcement law firm.
Wood notes Omnimedia's board should have separated Martha Stewart personally from Omnimedia Corp. when the controversy over Stewart's sale of ImClone stock first erupted, by instructing her to take a leave of absence. This separation would have enabled company management and staff to focus more on the performance of the corporation, and possibly resulted in less devaluation of the stock price.
Retaining Martha Stewart on the Board, Wood believes, has resulted in a free fall for the stock and opened the company up for shareholder litigation. He believes shareholders may argue the Board unreasonably allowed Martha Stewart to maintain control over the company, or at least failed to object, to her continued involvement. Shareholders may argue that the Board knew, or should have known, that Martha Stewart's continued involvement would result in a large drop in stock price. And, the Board's failure to act may also result in the company's losing its directors and officers liability coverage.
D&O insurance policies protect company directors and officers from liability for a wide range of misdeeds, Wood states. Any company faced with the imminent indictment of a senior officer or director should seriously consider asserting a claim against him or her under the directors and officers liability policy, in anticipation of a shareholder doing so derivatively. This is especially true if an investigation is conducted by a special litigation committee put in place to find any grounds for potential director and officer liability to the company itself. Such a claim may be excluded until a stockholder actually asserts it derivatively for the corporation, but pre-emptive assertion of the claim can lock in coverage while the policy is still in effect. This can be absolutely critical to protecting stockholder interests in situations like Omnimedia Corp's, Wood continues.
Finally, Wood notes most directors and officers policies are renewed on a yearly basis. At annual renewal, insured entities must disclose any facts that could lead to a covered claim. Such a disclosure may prompt the carrier to decline to renew or, more commonly, endorse the renewal policy to exclude the acts disclosed. If either event happens, a critical path to recourse for the stockholders is effectively blocked.
About Wood & Bender LLP
Wood & Bender LLP is the nation's leading law firm in the fast-growing practice of insurance policy enforcement. The firm focuses on five critical services: analyzing and recommending optimal insurance strategies, negotiating with carriers and customizing clients' insurance portfolios, evaluating and enforcing claims of loss, developing clients' business settlement and litigation strategies, and preparing the litigation defense of clients to compel insurers to assume their responsibilities. Wood & Bender serves mid-sized to Fortune 1000 corporations, large non-profit institutions and public entities, as well as partners with attorneys at mid-sized and large law firms who require support in insurance enforcement expertise. The firm is headquartered in Camarillo, Calif. with an office in Los Angeles.