COVID-19 Effect – Directors & Officers Insurance

We are dealing with challenges that are unprecedented in modern times. As COVID-19 continues to dominate our lives and global news headlines, businesses need to prepare for the challenges ahead.

In these extraordinary times our daily routines, both personal and professional, as well as our consideration of health and safety have changed considerably. The comfort level of individual employees regarding social distancing and PPE is likely to be far more important than it previously was, as is the individual’s need to shield themselves and their families from potential exposure to the COVID-19.

As a result of these and other considerations, we expect to see certain types of EPL claims specific to the effect of the COVID-19 manifest in the following ways:

• Increased potential for employment retaliation or wrongful termination claims resulting from an employee’s complaint about the safety of patients or employees due to a lack of PPE used during COVID-19 pandemic.
• Retaliation against an employee for comments to, or interaction with, the press or social media which an employee feels is justified.
• Employees making reasonable requests of their employers regarding the conditions under which they return to work during the COVID-19 pandemic and having them turned down.
• A high-risk employee who refuses to return to work and is subsequently dismissed may pursue a claim for discrimination based on disability.
• Claims for discrimination arising over how employees were selected for inclusion in groups that were furloughed or whose pay was reduced.
• In the instance of a labor pool having been created for furloughed employees, claims may be brought by those who are either reluctant to return to work when selected, or resentful that they have not been selected to return.

Preparing for the new normal

Directors and Officers Liability (D&O) insurance is a fundamental component of any company’s risk management programme. A lack of D&O insurance may dissuade talented individuals from seeking an executive position at your company, as they don’t want to put their personal assets at risk in the event of a legal action.

As a savvy business owner looking to protect your bottom line, how do you weigh the cost of insurance to protect your senior leadership with the potential risk of a legal action? As regulatory investigations and defence expenses increase, prices for D&O insurance have gone up as well. Corporate indemnification provides the first line of liability protection; but certain circumstances—most notably, if the company goes bankrupt—necessitates that additional protection is offered to directors and officers.

A variety of factors determine the price of a company’s D&O insurance. Some low-risk companies pay pennies on the pound; others pay a lot more, but they understand it’s a lot less than the expenses they’d incur in a legal action. Recognising the cost drivers of D&O insurance—a company’s exposures, legislation and trends in D&O legal actions—can help you decide what cover your company needs to mitigate its unique exposures.

What Type of D&O Cover Do You Need?

Your organisation’s unique attributes and risks will determine the extent of D&O insurance cover you need. The type of cover affects the cost, and it’s important to understand the different types of D&O insurance to determine what covers your risks. Policy options include:

Side A: This cover protects directors and officers when indemnification is not available. For example, if the company goes bankrupt during a lawsuit, this cover would protect directors’ and officers’ personal assets.

Side B: This cover reimburses a company’s indemnification obligations.

Employment Practices Liability (EPL): This cover protects directors and officers against wrongful termination, discrimination (age, sex, race, disability, etc.) or sexual harassment suits from current, prospective or former employees.

Know What Your Policy Covers

While many companies usually focus on the cost of their D&O policy, understanding the scope of the policy is even more critical. Most D&O policies are renewed yearly, and the terms and conditions can change. Read through your policy carefully. Be aware of the following:

• Look at the limits of your liability. Are they enough to cover your exposures? Companies with a lot of risk exposures usually find that they need more than just the primary cover, and purchase excess insurance as well.
• Be aware of exclusions; most D&O policies do not cover claims that arise from fraudulent or criminal acts.
• For some insurance insurers, Employment Practices Liability (EPL) insurance and Fiduciary Liability insurance are policies that are purchased separately from primary D&O insurance. Don’t assume they are automatically included in your D&O policy

For more information on D&O cover options for your company, contact Dixons Commercial Insurance Brokers today