Covid-19 is causing havoc both to human life and economic activity. In these times, a directors’ and officers’ liability insurance policy protects directors against many possible new and emergent risks.
Covid-19 induced responsibilities for Directors & Officers
2020 has started on a threatening note with Coronavirus. As more and more countries have been hit by Covid-19 the global economy has taken a severe hit. The situation has created an unprecedented challenge for businesses, which are grappling to comprehend the scale of possible financial setbacks.
At such a time the burden of keeping businesses afloat lies on the shoulders of the directors and officers of every organization. These individuals need to take the necessary executive and managerial decisions for the best benefit of the company. They need to steer it through the current setbacks.
The current scenario has left them stumped. There is no handbook available to guide key company personnel like directors on measures to take during such a pandemic. They have to rely on their best judgment for taking executive decisions. However, these decisions might be insufficient to manage properly, or backfire, landing them in a lawsuit where they are held financially liable.
How can a D&O policy mitigate the threat of liabilities?
A directors and officers liability insurance policy are available to help protect an organization’s directors and officers from any financial liability that they face due to their actions. If any director or officer of an organization makes a mistake that harms a third party, he would be financially liable for the loss caused. A directors and officers liability insurance policy cover these financial liabilities. It helps the directors and officers to bear the financial burden of a lawsuit or legal compensation payable to the aggrieved party. The policy covers:
- Legal expenses incurred in a lawsuit
- Settlements payable to third parties
- Any type of financial liability imposed on directors and officers for their mistakes
(Read this article to know how a D&O insurance policy works).
In the current scenario of Covid-19, here’s how a directors and officers liability insurance policy proves highly relevant for the protection of directors and officers.
Risks related to Business Continuity plans, statutory activity, and disclosures
At this time, stakeholders expect the organization to have a strong enough Business Continuity Plan (BCP) which will describe and enumerate the risks it faces. It will also detail a set of commensurate actions for all departments for business continuity. The organization is expected to hold the Board meetings as per schedule and complete necessary regulatory disclosures and filings. The directors and officers face the risk of legal action and fines if a stakeholder alleges that the BCP was not comprehensive or well executed. They can face legal action if the company misses any of the statutory activities or filings. Also, they must ensure that the communication channels (email, text messages, video conferencing, etc.) are finalized for effective remote working without making any compromise on the company’s privacy. A D&O insurance policy in place can help minimize the liabilities arising from such eventualities.
Employee-attendance related risks
Many companies have gradually re-opened offices. This has its risks because an office environment can result in covid infection. If an employee tests Covid-19 positive and claim to have contracted the disease before the work-from-home guideline was in place, he may file a lawsuit against the directors and officers.
It is also the responsibility of the company to ensure that the employees do not gather in numbers in one place for any work-related activity. A slip in ensuring this might land the company and its directors and officers in trouble. In such cases, if there is litigation, a D&O insurance policy would come to the rescue.
Logistics and supply-chain-related risks
For many companies, say in FMCG, revenues depend on the transportation of goods. If a business is unable to deal with logistics issues due to lockdown and faces losses, its directors and officers may face legal action. Similarly, if the supply chain of the business is not properly adapted to meet the current challenge, it might raise questions about the efficiency of the directors and officers. In these cases, the D&O insurance policy would prove helpful to manage the claims.
Loss-management and disclosure-related risks
While for many companies the revenues are reduced or at near-zero in the Covid-19 situation, costs might not have come down proportionately. For instance, the fixed costs or salaries might remain constant, and there could be additional Covid-19 prevention costs incurred, resulting in net losses. In such a situation, the directors and officers are expected to take adequate steps to ensure the minimization of losses so that the business remains solvent. Further, stakeholders may expect adequate disclosures and accurate estimates of the losses incurred. If directors fail in these duties, they could face lawsuits from the stakeholders.
Again, directors’ and officers’ insurance would cover the financial loss.
Cybersecurity and Data Protection
The level of online activity has materially increased during the pandemic. Hence, data protection and cybersecurity becomes big concerns for many organizations now. If there is a breach of security, the directors and officers may face a lawsuit. A D&O liability insurance policy will protect the directors and officers from the associated costs.
(Here are some other risks that directors and officers face).
In conclusion, the directors and officers of a company bear huge responsibilities. With the recent pandemic, they need to tread even more cautiously. Any mistake on their part can have far-reaching effects and land them in financial trouble. Thus, a D&O insurance policy is critical for them. This policy gives the directors and officers peace of mind. They know that if any decision goes wrong, they are covered for liability.
How SecureNow can help
Thus, buying the best D&O liability insurance policy is necessary for a company. However, with so many general insurance companies offering a D&O insurance policy, it could be a difficult task to choose the right one. Let us help you make the right choice.
