Among its many other ripple effects, the Covid-19 pandemic may impact Directors and Officers (D&O) liability insurance, as public and private companies fight to stay afloat amid calamitous economic conditions. There is no assurance that shareholders, employees and customers will let companies – or their offices – off the hook, even for a worldwide health disaster.
Coronavirus-related “event-driven” litigation and shareholder derivative suits have begun to arise, alleging “a series of false and misleading statements and concealed material information” about its health and safety protocols and its alleged “role in facilitating the transmission of the virus” against cruise line provider Carnival Corporation. Also, Sorrento Therapeutics and its officials have been accused of making misleading comments about a COVID-19 “cure” that led to a near-tripling of its share price, before the company recanted and modified its claims.
As a result, according to industry experts, both public and private companies will need to pay close attention to their D&O insurance. Said one such expert, “Many small businesses have had to close their doors temporarily because of the coronavirus, and they lack the surplus of capital needed to sustain their operations through those mandatory closures.
“We’re seeing a lot of smaller retail businesses and restaurants suffering from economic hardships, which can lead to possible D&O lawsuits down the line. The larger publicly traded companies will likely weather this storm a bit better because they have a higher surplus of capital to see them through. However, if they fail to weather the storm and they end up closing some of their operations, we anticipate that there could be an uptick in D&O lawsuits related to mismanagement.”
Terms of D&O coverage may need to be adjusted, as well, with the proviso that – given the radical economic shifts that Covid-19 has introduced – companies may have to contend with higher premiums for similar coverage, or lower coverage at the same premiums. The variables continue to multiply.
Yet regardless of how all of this plays out, companies still need to provide the best D&O coverage possible to protect their officers and top managers. The professionals at The Reschini Group can expertly guide any public or private company through the forest of potential pitfalls and existing or new opportunities to meet this critical objective. Contact us today to learn more.
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The Reschini Group provides these updates for information only, and does not provide legal advice. To make decisions regarding insurance matters, please consult directly with a licensed insurance professional or firm.