(Bloomberg Opinion) — Elon Musk was on to something when he complained that the cost of insurance to protect company directors and officers (D&O) from shareholder litigation has gotten out of control. The impulsive Tesla Inc. boss may be an unlikely spokesperson for the unfairness of these spiraling fees, but they reveal something about this age of corporate misadventure and trigger-happy lawyers. It’s bad for shareholders, companies and insurers alike.
When executives get sued, the payouts can be steep. Take the recent 270 million-euro ($320 million) settlement between Volkswagen AG and its directors’ and officers’ insurers over former executives’ alleged mishandling of Dieselgate. In the U.S., Wells Fargo & Co.’s D&O insurers agreed to fork out $240 million in 2019 over the bank’s fake customer accounts scandal.