D&O Insurance and Potential Impacts of COVID-19 on Business Policies

Seemingly without warning, COVID-19 swept across the globe forcing businesses to adapt to new health standards or shut down until they could meet them. The coronavirus even affects businesses deemed “essential”.

While many businesses shifted to remote solutions during the height of the pandemic, most states are reopening in phases. Between essential businesses that had to adapt and companies that are opening with new health standards, Directors and Officers (D&O) insurance is a critical consideration for business owners right now.

D&O Insurance Implications Resulting from the COVID-19 Pandemic

COVID-19 created unique hurdles for businesses in multiple industries. Essential businesses have different challenges than organizations that provide secondary goods and services. That means business owners will face contrasting implications with their D&O insurance policies.

Depending on the industry, company size, and business structure, among other factors, directors and officer’s coverage implications include:

Cybersecurity threats: Working from home presents a unique set of risks, especially for employees in industries with sensitive and confidential information. Cyber threats from the increase in remote employees present a very real COVID-19 risk to D&O insurance claims.

Exclusions and limitations D&O coverage usually includes language for fiduciary responsibilities, regulatory requirements, and pollution, but there might be ambiguous exclusions or limitations that prevent claims related to COVID-19.

Grant or loan inquiries: Businesses that apply for COVID-19 grants or loans through organizations like the Small Business Administration could face repercussions in government investigations. Directors and officer’s insurance might cover any losses as a result.

These are some of the most common D&O insurance concerns for business owners during the COVID-19 pandemic, but there are other things to consider.

Directors and Officers Coverage for Specific COVID-19 Circumstances

While many businesses have survived the coronavirus pandemic, others could face serious financial consequences because of the global disaster. From stock market exposure to going out of business, COVID-19 has widespread implications for D&O coverage.

1. Antitrust Claims

Most small businesses and corporations will cooperate and coordinate to ensure the country’s safety during this crisis. However, there are always companies – and people – that will take advantage of these situations, and the Federal Trade Commission and Justice Department are working together to fight them. This means businesses should employ cautious practices during the pandemic.

2. Bankruptcy or Insolvency

The coronavirus hit small businesses especially hard. There are estimates that approximately 2% of small businesses – over 100,000 of them – have permanently closed since the outbreak began shuttering operations in March. Directors and officers’ insurance is critical for business owners who are facing bankruptcy or insolvency as a result of the coronavirus.

3. Fiduciary Claims

Depending on the size and structure of a company, businesses have multiple fiduciary responsibilities to protect during the COVID-19 pandemic. Small businesses might need D&O coverage for managing workers’ compensation programs while corporations could need liability insurance that covers a company’s investment in everything from health insurance to retirement plans.

4. Securities Law Claim

Largely a concern for public companies, securities laws protect investors and shareholders. This is especially important following the COVID-19 pandemic as there could be speculation about the risks a company took. D&O coverage could potentially protect managers that saw a significant drop in their stock prices during the pandemic, though it’s important to clarify coverage exclusions.

Choosing D&O Insurance Limitations after the COVID-19 Pandemic

Before the coronavirus outbreak, D&O insurance policies were becoming stricter and insurance companies began including more exclusions and limitations. However, language has generally been very broad, which means there could be further tightening of those policies. Businesses might see language that is specific to global pandemics or health disasters.

That means business owners will need to be extra diligent when renewing their directors’ and officers’ insurance policies. They’ll want to closely review any new exclusions that result from COVID-19 while ensuring adequate policy limitations given the “new normal.”

Principal Agent, Marvin Snipes

Looking for a partner to expand your D&O coverage? The Snipes Group has the credentials and experience to protect you and your business. Contact Marvin at 800-549-0161 EXT. 701 or msnipes@valoragent.com.