D&O risks

A recent report by Fitch Ratings indicates that among the insurance lines most impacted by potential COVID-19 losses are Directors and Officers (D&O) Liability, Employment Practices Liability (EPL), and Errors and Omissions (E&O) where allegations of negligence tied to poor loss prevention or preparation for a pandemic are possible.

In fact, the coronavirus has hastened the pace in an already hard D&O market both for private and public companies. The market began to tighten in 2018 as a result of an uptick in U.S. securities class actions against companies domiciled outside of the U.S., as did the number of legal disputes led by U.S. plaintiffs’ law firms. In addition, the increased cost of litigation and defense fees, settlement values, event-based litigation, and merger and acquisitions claims have all contributed to the current D&O climate.

Recent figures from Marsh indicate that insurance pricing in the second quarter of 2020 in the U.S. increased by 18%, year-over-year.

Company Disclosures, Bankruptcies A Concern

There is also great concern that moving forward, if a company’s performance doesn’t align with its disclosures, there could be more of an uptick in securities class action litigation. Another fallout from COVID-19 is the fear of bankruptcies, which have already materialized, and the possibility of litigation against directors and officers. Retailers like Lord & Taylor, J. Crew, Neiman Marcus, and J.C. Penney and rental car provider Hertz have filed for bankruptcy as a result of the impact of coronavirus. According to the Brookings Institute, double-digit reductions in revenue for many companies and difficulties in addressing enormous debt loads (as much as $15.5 trillion in the aggregate) are expected to drive an increase in bankruptcies. =

It’s important for companies to take a close look at their D&O policies and how and when they will respond. Companies should also review their risk management controls and procedures in place regarding disclosures, safety, employment practices, and other exposures.