D&O insurance cover and COVID-19 planning - any good news?
As we enter a new phase in the response to the coronavirus pandemic, businesses across the country are deciding if, when and how to re-start operations.
Many months of detailed planning will come to fruition for some. For others, lack of clarity as to when and how they might be able to operate will necessarily mean that some intense planning and preparation is now underway.
For every business, large or small, across almost every sector of the economy, the same questions arise. How can we operate safely? Is the planning we’ve done adequate to protect us, our employees and our customers? What are the consequences of getting it wrong?
In an earlier blog in this series, we looked at risks which are likely to give rise to claims from employees and members of the public against companies, resulting in EL/PL claims. But what about directors and managers personally?
Adding to the unprecedented stresses and strains which so many businesses face at the moment, directors and managers may feel exposed and vulnerable given the potential consequences if management planning is not adequate.
Can insurance cover offer any comfort?
Some of the commentary on the likelihood of insurance coverage for COVID-19 related losses has made for bleak reading for businesses. But there may be some comfort for managers within businesses which have Directors’ and Officers’ Liability, or D&O insurance, in place.
D&O insurance is often referred to as management liability insurance. It is designed to provide cover for the risks to directors and managers for the potential personal liability which goes hand in hand with managing a business.
Although wrongful trading laws have been temporarily suspended, there are still concerns for directors of companies where there is an insolvency risk. And outwith the insolvency sphere, we can readily see claims by disaffected employees and other stakeholders looking at the planning which was put in place to manage the ongoing risk from the pandemic.
The same applies to the policies and procedures which were put in place to facilitate access to the company’s systems to allow the business to continue during lockdown. Or there may have been a failure in the supply chain which led to production ceasing and that failure may be traced back to management decisions or planning.
As lockdown eases, the immediate priority for most people will be to get back to work. The post match analysis is likely to come later. When it does, those responsible for taking strategic decisions and directing the company’s response to the pandemic may wish to know if the D&O policy in place is likely to provide cover for any personal liability which could arise from claims for breach of duty, breach of trust or negligent mis-statements.
The good news is that although most D&O policies will not expressly provide or expressly exclude cover for a pandemic, in many situations, the policy will likely to respond to provide cover.
Most policies provide cover for losses arising from a “wrongful act”. Claims for bodily injury and property damage are likely to be excluded, but for the most part, it seems likely that policy cover will be available for claims against directors and senior managers directly for losses arising from management planning for the pandemic.
The importance of ongoing reviews and written records
Prevention is of course better than cure. As businesses begin trading again, or if they have been trading but are continuing to monitor the ongoing risk, the prudent course of action is constant review of financial and operational issues, along with regulatory requirements and reputational concerns. Businesses should keep a written record of strategic decisions taken and record the reasons for those decisions, whether that is in a board minute or a simple contemporaneous note.
If legal or financial advice is needed, make sure it is obtained in good time and that the reasons for following or rejecting the advice are recorded. Demonstrating that professional advice has been sought is likely to bolster the defensibility of a claim.
Navigating the new normal
Given the likelihood of localised surges in the COVID-19 pandemic, businesses will need to live with the new normal for some time to come. Strategic planning will be key for managers who are navigating businesses through these choppy waters.
For those concerned about personal implications for the management team, there is likely to be a good chance of cover being available for claims or regulatory investigations arising from decisions taken in response to the COVID-19 pandemic.
This may not provide much short-term comfort in current trading conditions where the immediate concern is to secure a revenue stream again. However, in the longer term, it is helpful to know where the business is likely to stand after the dust settles.
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