There is no doubt that the COVID-19 crisis has brought with it challenges you thought you would never face and probably never planned for. You have had to make critical business decisions in double quick time, with your main concerns being:
- The safety and wellbeing of your employees
- The financial security of your business
- Your customers, suppliers and other stakeholders
The situation has been fast changing and continues to be so. The decisions you, your fellow directors and your management team have made, have all been done so in good faith to ensure compliance with your legal and moral duties.
But what if these decisions are questioned and you find yourselves being sued for a ‘wrongful act’? With COVID 19 comes the potential for new sources of litigation such as:
- Employees may sue you for a breach of employment law or inadequate procedures and policies
- Shareholders could see you as being negligent in your handling of the situation or having an inadequate Business Continuity Plan
- Insolvency is more likely and you could be pursued personally by a range of stakeholders for continuing to trade whilst being insolvent
- Regulators may investigate and/or fine you if guidelines issued by authorities haven’t been followed, or you have breached your statutory duties. Last month, HSE updated its rules on RIDDOR reporting in respect of the Coronavirus, placing yet more responsibility and accountability on employers
- Cybercrime has increased as a result of more people working from home, with systems being set up in a hurry and usual controls perhaps relaxed in the new working environment. Directors could be held liable for data breaches or other losses.
However spurious a claim or allegation may be, it still costs money to defend.
Directors and Officers (D&O) Insurance can protect you, your personal assets and your business. Please refer to my earlier blog for more information.
Claims Made Basis
Just before COVID-19 impacted our lives, I began working with a new client. One of the covers I recommended to them was D&O. A couple of weeks after I gave them the quote, they decided to proceed. On attempting to issue the policy, however, the system created a declinature (ie a no quote). After several conversations and emails with the insurer, it transpired that during the elapsed time, they had taken the decision to withdraw all quotes for E-Traded New Business but not broadcast this fact. Technically, I could have pushed for the quote to stand, but after more indecision on the part of the insurer it became clear that it was in the client’s interest to place the risk elsewhere. On requoting, I found that another insurer had doubled its premium. This was crazy! I found an alternative, competitive solution and the policy was taken out. The client had the assurance that going forward, cover was in place should something happen. And as D&O policies are on a ‘claims made’ basis, a claim would be considered regardless of when the underlying conduct may have occurred as long as the claim is made during the policy period. *
Clearly insurers are concerned and can see some potential for new claims. Some are already reacting to this as evidenced above. It is likely that more insurers will increase rates or withdraw from E-Traded solutions for this type of policy, preferring a more traditional method of underwriting. In the future, we may also see pandemic exclusions on policies or increased risk management requirements in respect of pandemics may be introduced.
There is no doubt that your risks as a director have increased as a result of COVID-19. This could be a good time for you to consider D&O cover so if you would like some help on how to mitigate these risks please get in touch.
*Obviously, in line with the Duty of Fair Presentation all known circumstances that could give rise to a claim must be disclosed prior to the inception of the policy.