NEW YORK (Bloomberg) - Sales of insurance for corporate directors and officers have surged as US executives seek protection from liability for losses incurred amid the credit market turmoil, according to Zurich Financial Services AG.

Investors sued 166 US companies claiming stock fraud last year, 43 percent more than in 2006, according to a study released last month by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research. Of the 100 companies sued in the last half of 2007, 23 were related to sub-prime losses.

"It's an octopus, you're not quite sure where the tentacles will go," said Salvatore Pollaro, in charge of commercial directors & officers coverage in North America for Zurich, Switzerland's largest insurer. "Not too far down the road, you may see it affect the auto and retail industries - anyone issuing credit." Mr. Pollaro spoke in an interview in New York, where his company sponsored a conference on the insurance.

Zurich is selling more policies to cover individuals' liability in instances where the company is not financially or legally able to indemnify them, Mr. Pollaro said. So-called Side-A policies kick in when shareholders accuse directors of wasting a company's money through failing to perform oversight duties or if the company becomes insolvent. Sales in the past six months doubled compared with the prior six, he said.

Mr. Pollaro, who deals with companies with more than $750 million in market value or assets, said every customer he sat down with over the past few months expressed concern about possible D&O liability, and policies are being sold or renewed for "much higher" levels of coverage. He declined to be more specific.

Henry Keeling, chief operating officer of XL Capital Ltd., the Bermuda-based business insurer that competes with Zurich in the D&O market, said in a conference call earlier this month that "we anticipate that opportunities will arise from the current market turmoil for our professional lines business".

The CtW Investment Group, which says it works with union- sponsored pension funds with $1.4 trillion of assets, sent letters today asking three directors at both Bank of America Corp. and Washington Mutual Inc. "to describe what they did to protect shareholders from excessive mortgage-related risk," the organisation said in a statement. CtW Investment is affiliated with Change to Win, a group of unions representing six million workers.

Charlotte, North Carolina-based Bank of America, the largest US bank by deposits, last month said fourth-quarter profit dropped 95 percent after $5.28 billion of mortgage-related writedowns and provisions for future loan losses. Seattle-based Washington Mutual, the largest US savings and loan, had its first quarterly loss since 1997.

In August, American International Group Inc., the biggest insurer of US corporate boards, said it was asking potential clients if their companies make home loans to the riskiest borrowers or invest in securities backed by them, as it sought to avoid bad bets on companies that might be vulnerable to shareholder lawsuits.

While demand has climbed for D&O policies, enough companies are competing for the business to keep prices falling, Mr. Pollaro said. D&O rates in the US fell on average 7.6 percent in the fourth quarter, compared with a 12 percent drop in business insurance pricing overall, according to the most recent survey by the Council of Insurance Agents and Brokers.