The recent debate surrounding extradition has highlighted the confusion that exists regarding what is currently covered under directors' and officers' (D&O) liability insurance and has forced some insurers to change the way they offer policies, according to Marsh, the world's leading risk and insurance services firm.

Nick Foord-Kelcey, Marsh's European D&O practice leader, said: "Some of the confusion surrounding D&O liability stems from the wording in the policies not being clear in relation to extradition and there being little consistency of approach from insurers. In our experience, insurers' stances vary and we are seeing boardroom requests for explicit confirmation of cover for the cost of opposing extradition and obtaining a bail bound.

"It is important to be cautious, to take advice and consider amending or extending the D&O policy to achieve clarity for your directors and officers. Analysis is also important when reviewing any cover provided by a prospectus liability policy, as similar liabilities are covered under such policies and directors could face extraditable offences.

"This increased vigilance is evidenced by a number of cases where US courts are asserting jurisdiction over matters that, on the face of it, would appear to have little to do with US jurisdiction. These new risks have raised questions about how can directors protect themselves against extradition."

According to Mr Foord-Kelcey, the recent changes mean directors and officers need to understand the criminal law regime of any country with which they conduct business, and review and strengthen internal controls as necessary: "From an insurance perspective, it is important that a company's directors' and officers' liability policy is not underwritten on the basis that excludes liabilities relating to the US if their directors and officers have any business contacts in the country," Mr Foord-Kelcey said.

Some insurers will also cover the cost of the premium for a bail bond arising in relation to a D&O claim. If a defendant does not have the cash to cover the bail amount, obtaining a bail bond backed by an insurance contract is an alternative option. The bail bond insurer may also want sufficient collateral to cover the full amount of the bail if the defendant misses their court date, as the insurer will cover the premium, but will not provide the collateral.

Following the Sarbanes-Oxley legislation, which imposes jail sentences up to 20 years, and more recently the NatWest 3, many directors are changing the way they act in the boardrooms. This is reflected in the declining number of US shareholder class actions. The number of US securities class actions has fallen since 2001, from a record 497 cases to 70 as of 28 July, 2006.

Clair Collins, Marsh's UK D&O practice leader, warned that people should not underestimate the ingenuity of class action lawyers: "The fact that lawyers are becoming more specialised and experienced in this kind of law can not be underestimated when looking at the decline in figures.”