As if the costs of Sept. 11 weren't enough, the insurance industry is feeling the chill from its exposure to lawsuits related to the stock market sell-off, as tumbling share prices and accounting scandals spark a slew of class-action lawsuits from angry investors and employees. With a growing number of workers claiming that their employers breached their fiduciary duty in conducting 401(k) plans and as more shareholders blame falling stock prices on executive misconduct, insurers are bracing for some high-priced check writing.

Certainly, 401(k) troubles at companies, such as Enron Corp. or Lucent Technologies Inc., have grabbed headlines. But 401(k)s are just the proverbial tip of the iceberg. Analysts predict billions in settlements from the outstanding class actions filed by unhappy shareholders, although it's difficult to quantify how great the exposure of insurers may be since these cases often take years and then are frequently settled out of court quietly for rarely disclosed sums. But not even all of these may hit insurers' pocketbooks, since in cases of fraud, an insurance company is likely to claim that it was being lied to by the company and "get off the hook," says Don Watson, a director with Standard & Poor's insurance ratings group.

That said, when plaintiffs win, settlements can be big. In 2001, 26 cases settled for more than $25 million, up from 11 in 2000, says Securities Class Action Services, which monitors class-action suits. Cendant Corp.'s settlement in 2000 holds the record at $3.2 billion, followed by Bank of America's $490 million settlement in February and Waste Management Inc.'s November 2000 settlement of $457 million. Given the magnitude of the market selloff and increased individual participation in recent years, says James Newman, Securities Class Action Services' executive director, "there are probably two dozen cases I would expect to settle in the neighborhood of $500 million or more in the next year or two."