DISCLAIMER: Brokers and employers must review their D&O policy for coverage limits and exclusions. This article includes generalizations about D&O coverages and must not be construed as coverage promises.
In the wake of the ongoing COVID-19 pandemic, a natural second act is a pandemic of lawsuits
against business executives.
Common examples from the last two years include claims of misleading statements during a merger and acquisition (M&A), bankruptcy resulting from negligence on the part of a director or officer, or failure to exercise reasonable care for patrons or employees. When a director or officer is named in a lawsuit, the executive’s personal assets are at stake. That is unless the business has a robust Directors and Officers (D&O) policy.
Many companies have already felt the sting of this new breed of D&O lawsuits.
In one case, a wrongful death suit on behalf of a Walmart employee was aimed directly at the company’s directors and officers. The lawsuit alleged
that the store in question didn’t disinfect the premises properly, failed to implement social distancing protocols, and declined to provide employees with personal protective equipment. Therefore a man contracted COVID-19 and subsequently passed away.
According to the family’s testimony, Walmart’s directors and officers were responsible for the man’s death as they owed a duty “to exercise reasonable care in keeping the store in a safe and healthy environment” to protect employees. While this is a high-profile case of a public company, many small businesses shut their doors during COVID-19 due to similar accusations.
Another COVID-19-related D&O class-action suit involved 25 U.S. universities where students sought to get tuition refunds for the times when the schools were closed due to the virus. Though the schools’ classes continued online, the students argued that the closures resulted in a decline in education quality. Universities don’t equate with corporations or small businesses in the same way. Cases like these could set a precedent with similar implications for other nonprofits.
What does D&O insurance cover?
D&O insurance protects directors and officers and other company employees based on their decisions on behalf of the business. It protects company leaders from suffering personal losses after claims of breach of their duties to the company, negligence, and errors or misleading statements by covering the cost of defending a lawsuit in court and for judgments and settlements as they relate to D&O claims.
Small- to medium-sized business executives have the most to lose because their organizations don’t often have robust enough D&O coverage. They’re also the least likely to be able to manage the hardships of closures, customer limits, sanitation procedures, and ever-changing health and safety guidelines. Hospitality, entertainment, and retail are the most deeply affected by COVID-19 liability lawsuits because those sectors require in-person contact.
What does D&O insurance exclude?
Sadly, the global pandemic claimed countless businesses. Many D&O policies exclude lawsuits that come from a business’ bankruptcy or insolvency. For the next few years this is one of the most important areas of discussion for a broker and clients.
Unfortunately, there are numerous other situations to which D&O may not apply to a COVID-19 claim, but the wording of the policy might make a difference. For example:
Bodily injury and disease: Claims for direct losses caused by medical expenses from an injury received on the job are usually excluded. Worker’s Compensation may cover that type of claim. Companies like those that routinely deal with chemicals or dangerous equipment will have additional exclusions built into their policies as well. However, financial losses resulting from bodily injury or diseases like COVID-19 — for example, securities claims — might be covered. Check your D&O policy.
Pollution and contaminants: Some D&O policies have exclusions built-in that preclude coverage in the event of a pollution release, like a chemical spill or the accidental release of “biological irritants,” including germs and viruses. Under this policy language, companies can’t make a D&O insurance claim due to an employee’s or customer’s exposure to COVID-19 or other viruses.
Creative uses for D&O insurance
Standard D&O policies may not apply to specific risks associated with COVID-19 but may apply to traditional D&O perils and through their added-value services, including those triggered by COVID-19 events. Such ‘silent COVID-19’ coverage may not expressly address pandemic perils but may still respond to them.
For example, D&O policies can provide some response in these scenarios:
Crisis Management Sublimits: Most carriers have specific scenarios that trigger a crisis fund or reputation crisis sublimit under their policies. Scenarios could include layoffs, product recalls, top executive resignations, and even negative earnings announcements. Most carriers have specific scenarios that trigger this type of sublimit under their policies.
Risk Management Services: Some carriers or MGAs (like Coalition) are now providing risk management tools for responding to Covid-19 scenarios - from pre-claim hotlines for D&O to specific suggestions like top considerations for your company’s vaccine policy.
Directors and officers depend on executive liability insurance to protect them against legal actions that result from their leadership decisions. During the coronavirus pandemic, company leaders may feel like they’re driving blind. With so many lawsuits sure to come, D&O insurance is more needed than ever.
Protect what matters most with Coalition D&O and EPL
Coalition sits at an ideal intersection of technology, security, and insurance. We launched early access
in late 2021 to our executive risk products and with a broker platform that utilizes real-time financial, regulatory, and transactional data to generate bindable D&O and EPL quotes in minutes, creating a seamless quoting experience for brokers.
This year, we plan to expand access to our executive risk products to the broader brokerage community. If you’re a broker interested in offering our executive risk products to your clients, click here! We’re excited to work with you to bring a new approach to executive risks
Visit Coalition now
to learn how to bring a new approach to executive risks.