NEW YORK (Reuters) - As record numbers of US companies wrestle with lawsuits from angry shareholders, they are paying out more for insurance to protect their directors from big-money settlements, and there's no relief in sight.

With margins under pressure, these costs are even more unwelcome and are adding to the headache companies have in finding directors to meet proposed corporate governance rules.

Cheap and plentiful in the 1990s, directors' and officers' insurance - known as D&O - is harder to secure, even for companies with clean records.

General Electric Co., for example, said this week it paid $22.1 million for D&O insurance in 2002, almost four times the $5.8 million it paid the year before, even though it has no problems with shareholder suits. It is set to renew the policy in June, and will likely face a further hike.

American Express Co., Nortel Networks Corp. and New York Times Co., among others, are also paying much more for D&O insurance, according to recent filings with the Securities and Exchange Commission.

That trend is likely to continue, market watchers say.

"There are no data showing that the state of the market is going to change," a source at insurance broker Willis Group Holdings told Reuters. "There's been a lot of bargains out there for the last decade, but now insurers are not shy of sharing loss situations with you."

Leading insurers like American International Group Inc. and Chubb Corp. are looking to claw back the huge claims they have paid out for corporate scandals.

"The soft market won't come upon us any time soon," said the Willis source, despite new entrants to the D&O market like Germany's Allianz AG and some Bermuda-based insurers. "There's no intense competition in terms of price. We're having difficulty filling out capacity."

Shareholder class-action suits jumped 31 percent, to 224, in 2002, not counting a proliferation of suits against investment banks over allocations of initial public offerings, according to a report by Stanford Law School.

Companies that have attracted shareholder wrath are the obvious candidates for higher D&O premiums.

Nortel, a fallen telecommunications star, bought $250 million of coverage last year for $3.7 million, it said in a recent filing. That is almost four times the $1 million it paid the year before. In 2000, it paid about $540,000.

Ottawa-based Nortel warned in February 2001 that demand for its gear was not as strong as it had thought, sending its stock down by a third and wiping out billions of dollars of investors' money. A lawsuit was filed in a matter of days. It has not yet been settled. The company declined comment.

Nortel is just one of hundreds of companies facing class-action lawsuits, and insurers are on the prowl for others.

"We've increased the due diligence," said Keith Thomas, who runs the commercial markets division at insurer Zurich North America, a unit of Zurich Financial Services "We look for red flags, such as charges, potential restatements, and relationships at the board level."

Before 2000, underwriters were a little too lax and didn't question companies' ever-growing numbers, Thomas said, but now they hire forensic accountants to look for danger signs.

The tally of lawsuits is likely to keep rising, Thomas said, as the Sarbanes-Oxley Act tightens corporate governance rules, giving lawyers more scope to find fault with accounting and board decisions.

Even relatively low-risk firms are feeling the pain.

New York Times, which hasn't faced any shareholder lawsuits, bought $125 million worth of D&O insurance cover for $7.8 million last year. That is up from $100 million of coverage for $4.5 million the previous year. Before that, it had a three-year deal for $200 million of coverage for just under $3 million.

American Express saw its premiums for its main directors' policy stay steady at around $1 million last year, but it bought $800,000 of extra protection to beef up coverage.

Most companies have no choice but to pay up for what is now seen as compulsory cover.

Only one large company has so far taken a public stand: Warren Buffett's Berkshire Hathaway Inc., which itself is an insurer of other companies' D&O risks.

"We don't provide (board members) with officers' and directors' liability insurance," Buffett said in his latest letter to shareholders. "Basically, we want the behavior of our directors to be driven by the effect their decisions will have on their family's net worth."

Leaving his board members on the hook for lawsuits has saved Berkshire's shareholders "many millions of dollars over the years," Buffett said. It seems few others are willing to follow his lead, leaving them at the mercy of insurers like Berkshire.