While the world wrestles to determine the full economic, political and social impact of the Covid-19 outbreak, company directors and officers arguably stand alone among decision makers as the most exposed to liabilities arising from the path they choose to take. Business leaders and decision makers in the corporate world, with a duty to shareholders, customers and employees, cannot afford to make or even be perceived of making the wrong strategic decisions, risking employee engagement and business continuity in the process.
As they strive to protect the businesses they serve, its assets and employees in these unprecedented times, directors and officers should be asking the question: “Who is protecting us for the decisions we are taking?”
Business leaders worldwide are taking monumental actions at this time; from altering working conditions, management of customers and shareholders, external communications and more.
Decisions at present are based on rapidly changing market dynamics, which are shifting seemingly on a daily basis. This is where Directors and Officers (D&O) Insurance is becoming increasingly important in the current climate, affording directors and officers the financial protection from being sued by stakeholders for decisions made to ensure the safety of employees and the continuity of the business.
D&O policies respond to claims brought against Directors and Officers (persons in positions of management), arising from their actions or omissions within the scope of their regular duties, and provides indemnity for legal defence costs and awarded damages.
Examples of claims that could be filed against Directors and Officers – highlighted further by the current Covid-19 pandemic – include:
· Breaches of health and safety regulations – such as where an employee claims for unsuitable working conditions and possible contraction of Covid-19 (where a manager may insist on employees coming to work against health and/or government advice)
· Employee(s) bringing claims for redundancy, unfair or constructive dismissal
· Claims by shareholders for financial losses incurred following a reduction in share price and/or reputational harm due to company mismanagement during the crisis
· Claims brought by investors or regulators following false/misleading information/omissions in publications, or made to government authorities, in response to queries or investigations into risks faced by the company due to the coronavirus
· Civil liability for alleged breaches of contract
· Shareholder claims following IT security failures during periods when employees are working remotely, caused by inadequate preparation or a lack of IT strategy, and which leaves the company vulnerable to and exploited by cyber attacks
In addition to the individual coverage, D&O insurance extends to reimburse public or private companies for related costs, including legal fees incurred by its directors. Coverage might also cover the company, not its individuals, in relation to claims associated with the company share value.
While security class actions remain the largest area of exposure for D&O claims, the current market conditions have left directors exposed to claims including how they manage their workforce. Should a manager force their employees to report to the office and risk the possibility of contracting Covid-19, he will be held accountable for his actions.
With the new business landscape forcing decisions to activate remote working mechanisms, directors must be extra cautious when making IT decisions, especially with the rise in cyber security threats.
IT security itself is a C-Suite responsibility and if directors do not take the necessary steps to guarantee the safety and security of company data and those actions are proven to be the result of mismanagement, or wrongful act, and not an intentional action that aims to damage the company or its reputation, the D&O liability insurance can be vital in protecting the company and its individuals.
The global D&O liability insurance market is estimated to be worth approximately $15bn. However, penetration levels remain low across the SME sector, largely due to lack of awareness and a perception that it is an expensive, unnecessary addition. In reality, D&O insurance rarely surpasses 1 per cent of a company’s cost base.
Osama Abu Ghazaleh is the general manager at ACE Insurance & Reinsurance Brokers LTD, Saudi Arabia