How COVID-19 Can Change Directors and Officers (D&O) Liability Insurance
As the COVID-19 pandemic affected many aspects of running a business and created new litigation risks for business owners, certain policy provisions of directors and officers (D&O) liability coverage may change in the wake of the coronavirus crisis.
What is Directors and Officers (D&O) Liability?
Directors and officers liability, which is often referred to as D&O, is a type of insurance coverage that protects directors and officers of businesses from losses and damages stemming from lawsuits that arise due to their role in a company. Also, D&O liability covers legal fees and other costs incurred by the insured’s business.
D&O liability insurance can reimburse any losses or damages suffered by the insured director or officer as a result of a lawsuit or legal action. While D&O coverage covers costs arising from legal actions over the insured’s alleged civil or criminal actions, intentional unlawful acts are typically not covered by the policy.
For any director or officer of a business or corporation, D&O liability insurance serves as a critical insurance policy that covers both liabilities of the business and personal liabilities of the insured.
A director or officer of a business can be sued for various reasons, including:
- Unauthorized or improper use of company funds
- Breach of fiduciary duty
- Material misrepresentation
- Violation of employment laws
- Theft of intellectual property
How COVID-19 Can Change D&O Liability Insurance
As the COVID-19 pandemic created a plethora of new legal risks for business owners, employers, shareholders, directors, and officers, insurance companies are likely to make changes to their policies.
As such, insurers are likely to stop covering some types of business operations and could introduce broader exclusions for D&O liability. As reported by Business Insurance in May 2020, D&O liability rates “jumped” in the first quarter of the year.
During and after the COVID-19 pandemic, businesses have seen a wave of D&O liability-related litigation as many companies had no choice but to shut down permanently. Directors and officers who are already covered by D&O liability may have a hard time qualifying for policy renewal in the wake of the coronavirus crisis.
Insurers are likely to introduce broader exclusions for D&O liability in order to stop covering specific types of business operations. When the risks are too high, an insurance company is more likely to add exclusions in order to limit the available coverage. Those new exclusions in D&O liability coverage are likely to be related to COVID-19.
In fact, even if it seems that D&O liability may cover coronavirus-related losses, insurance carriers are likely to deny coverage based on ambiguous policy language, existing exclusions, as well as specific conditions. For instance, many D&O insurance policies exclude coverage for “bodily injury.”
Whether or not your D&O liability can cover COVID-19-related losses depends on the insurance policy language as well as the facts surrounding your losses. It is critical to speak with a knowledgeable West Palm Beach commercial litigation attorney to find out whether D&O liability coverage can cover losses stemming from the COVID-19 pandemic. Contact our lawyers at Pike & Lustig, LLP, to schedule a consultation about your case. Call at 561-291-8298.