Consider this: Last year, the Securities and Exchange Commission investigated a hedge fund, and when all was said and done, the commission cleared the fund. The fund still had to pick up a legal tab of $10 million for their troubles. Such a scenario may be inspiring more hedgies to take out liability insurance policies, though not all HFs are convinced they need it. Wendy Dowd, an executive at Chubb, told TheStreet.com that she figures about half the top 25 hedge funds have bought policies just for such occasions, and worse. In fact, according to Investment News, a federal decision last year, Fraternity Fund v. Beacon Hill Asset Management, makes its easier for shareholders to sue a fund directly for breach of fiduciary duty, as opposed to the usual path of a derivative action. The court, in effect, found that the investors were harmed directly, and they were not just second-fiddlers to the fund itself. But most hedge funds still haven't made the move to insurance, for at least two reasons. First, insurance broker Michael Klaschka of Integro told The Street.com, is the expense: A hedge fund with, say, $250 million AUM would have a $25,000 premium for the first million dollars of coverage. And, second, is the denial factor. Hedge funds, says Klaschka, "don't believe their sophisticated investors will bring a claim, and they are unaware of litigious trends emerging in the industry." Maybe it's time to think again.