Why D&O Protection is More Important Than Ever

If you are a business owner, you will know the impacts Coronavirus has had on your balance sheet but if you are a director or manager, you may not be aware of the possible legal ramifications that could arise from the pandemic for you personally.

The potential for claims and court cases against corporate decision makers has been heightened by Coronavirus, particularly if their company is a PLC with shareholder responsibilities. A fall in the company shares’ value could be viewed as the result of mismanagement and ill- advised strategies during the crisis.

The insurance industry is braced for many shareholder actions, as companies enter liquidation[1]. Two lawsuits have already emerged. Norwegian Cruise Line Holdings Ltd is being sued for enticing customers to book cruises by giving false statements about the Coronavirus risk, thus endangering the lives of passengers and crew. Another action involves pharmaceutical company Inovio, which falsely claimed it had produced a Coronavirus vaccine. Its share price quadrupled, though no vaccine existed[2].

Directors could be accused of failing to exercise a duty of care over their employees, perhaps through not enforcing social distancing within business premises, or insisting employees travel to work, or due to not looking after employees’ needs whilst working at home[3].

Cutting corners could have led to cases of environmental damage, attributable to the negligence of a particular manager or director. Failure to protect against cyber attacks could lead to legal prosecution, if data is breached. Not having had adequate Business Continuity Plans could be viewed as an abrogation of a director’s duty. And then there are breaches of contract – anticipated to be another area from which litigation could arise between customers and suppliers. The company representative who decided not to honour contractual terms could be held legally accountable.

So many possibilities exist that insurers are now, reportedly, increasing renewal premiums on Directors & Officers (D&O) Insurance – which protects directors against claims brought by regulators, shareholders, creditors, employees and other parties – by as much as 400%[4]. Some companies are reportedly having difficulty buying protection for their directors, whilst others are having to accept policy exclusions, one of which may well reference losses arising from future pandemics.

Whilst cost-cutting will be a temptation for all businesses during and in the aftermath of the Coronavirus outbreak, cancelling D&O cover is ill- advised. It could actually be viewed as being more important than ever[5]. Our efforts will be directed towards working with clients, to get them the best possible premium and level of cover, as their policies renew, as well as getting new clients the best deal.

For directors and senior managers without D&O Insurance, the advice is to put a safety net in place, to help protect your personal financial assets (and avoid a possible prison sentence, in the most serious cases). In economically difficult times, the business world could become highly litigious. Spending money on D&O cover now, should assist if an expensive legal action needs to be defended in the future. Get in touch with one of our brokers today.

Sources:
[1] https://uk.reuters.com/article/us-health-Coronavirus-insurance-director/insurers-fret-as-company-bosses-face-Coronavirus-legal-claims-idUKKBN21J60R
[2] https://finance.yahoo.com/news/inovio-shareholder-alert-class-action-215000870.html
[3] https://www.pinsentmasons.com/out-law/analysis/Coronavirus-do-insurance-claims
[4] https://www.telegraph.co.uk/business/2020/03/30/directors-risk-insurers-raise-premiums/
[5] https://www.willistowerswatson.com/en-GB/Insights/2020/04/covid-19-and-executive-risk

Disclaimer:
Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage.

The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates.

COVID-19 is a rapidly evolving situation and changes are occurring frequently The information given in this publication is believed to be accurate at the date of publication shown at the top of this document. This information may have subsequently changed or have been superseded, and should not be relied upon to be accurate or suitable after this date.