You’re probably all too aware of the heightened risk that comes with the current trending environment. Directors and Officers (D&O) insurance protect the executives of both public and private companies from being held personally responsible for wrongdoing when in charge of a company. 

So how does this hold up with the onset of the COVID-19 pandemic?

According to PWC’s Annual Corporate Directors Survey, more than 95% of Directors said their companies did a good or excellent job handling the issues brought about by the pandemic. That’s all good and well, but the initial challenge for directors was to keep the business afloat and doing that may have offered them a slight reprieve. Now that we’re moving into the ‘new norm,’ business leaders are being scrutinized by shareholders or a board of directors who want to hold them accountable for the sink or swim.  

Likely your D&O policy wording won’t talk about specific risks related to a virus, as no one could have predicted it in advance. However, a policy should allow for a range of alleged wrongful acts or poor decisions by management. In the future, insurers will reduce their risk by incorporating new exclusions for insolvency and dangers related to bacteria and viruses.

Steps you can take to mitigate your risk

As the economy starts to re-open, there will be an increase in claims under D&O policies.

The situation remains fluid, and policyholders should act now to evaluate the risks that could generate a D&O claim. As a broker, we will closely examine the terms of any policy renewal for modifications that restrict coverage. 

To mitigate your risk:

• Set up a COVID-19 board committee for overseeing pandemic matters
• Monitor and report regularly on compliance risks
• Speak to your insurance broker much earlier about your renewal
• Be transparent and disclose any new exposures the business might have

Formalize Employment Practices

The potential for claims under D&O is endless. Underwriters will look favourably on businesses with all their ‘ducks in a row’ in critical risk areas.

Employees bringing harassment and discrimination cases is one of the critical causes of a claim under D&O policies. Having stringent employment practices in place can lower your exposure. 

Some things to consider may be:

• Create an employee handbook to define expectations for employees. A manual can evolve as the company grows, incorporating things that have gone wrong in the past and resolving disputes before they get to court.
• Writing policies around discriminatory conduct and ensuring new and existing employees adhere to it.
• A dedicated HR Manager or department that reports directly to the company’s CEO or head. This structure ensures messages around worker’s safety and potentially costly compliance risks get to the top fast, lessening the chance of a claim in-between.
• Create a professional development program to assist in reducing an exceptionally high staff turnover ratio.
• Create formal hiring procedures.
• Ensuring critical hires at the director level have appropriate industry experience

Key questions to ask your insurance broker:

• What type of policy (claims made / occurrence) and what’s the difference?
• What’s the extent of the liability coverage?
• What exclusions are there in my policy?
• How is ‘loss’ defined? What kind of loss is covered?
• What are the policy provisions for defence costs in the event of litigation? 
• How and when are defence costs paid?
• What is a ‘run-off’ period, and do we require one?

Directors and Officers Insurance may be the saviour of many businesses that don’t have the cash reserves to see them through further COVID-19 closures. It’s an intricate product that can be structured to suit your specific business needs.  As your partner, we can guide you through the process.

Contact us to talk to a risk management specialist about your D&O protection options.