Insurance Coverage For Subprime Claims Against Hedge Funds: Will Your Insurer Pay?

More than 600 lawsuits are pending against various entities caught in the fallout of the subprime mortgage meltdown and global credit crisis, with additional litigation a near certainty.  A prime target is hedge funds and their advisers and general partners.  In addition to the losses already suffered as the value of their securities plummeted, hedge funds now face the costs of the resulting litigation.  With the litigation swirling, it is time for hedge fund managers to review their Errors & Omissions and Directors & Officers liability policies.  In a guest article, Matthew J. Schlesinger and Jan A. Larson, partner and associate, respectively, in Reed Smith LLP’s Insurance Recovery Group, examine the purpose and operation of E&O and D&O insurance, common coverage exclusions of which hedge fund managers should be aware and practical tips for hedge funds that currently face, or believe they are likely to face, claims or even litigation.

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