D&O Insurance Challenges: Mitigating Liability Due to Class Actions and Shareholder Claims

This CLE course will address the limitations and claims being brought against corporate directors and officers in 2021. The panel will address the increase in shareholder and class action claims filed in the wake of COVID-19 and subsequent economic issues. The panel will discuss the limitations with renewing D&O policies and the likelihood of reduced policy limits, as well as the need to seek captive insurance offshore or other alternatives to mitigate risk.

The outbreak of the COVID-19 pandemic and the subsequent economic stress has exacerbated an already fraught time for corporate directors and officers. Corporate management is not only subject to claims ranging from securities class actions and merger objection suits to cyber liability and claims arising from their company's normal operations, but also disputes related to decisions made during the pandemic and lockdown orders.

D&O liability insurance is a necessary protection for any enterprise. Still, insurance policies are not written on a one-size-fits-all form and often are subject to negotiation and, upon renewal, renegotiation. Insured's counsel must ensure that the policy provides the sought-for coverage and adjust for additional risks that arise due to changed circumstances or actions by the company. Policy renewals may limit coverage of claims and set policy limits due to the current economic forces.

There has been an uptick in COVID-19 event-driven litigation against directors and officers as evidenced by two major class actions filed early in the wake of COVID-19 against a cruise line operator and pharmaceutical company. Both involve suits against the businesses for making false and misleading statements in public disclosures about COVID-19 to generate sales. These are cautionary tales regarding the potential for liability when making misleading company disclosures or other corporate mismanagement. It is not yet clear if these new kinds of event-driven litigation will be covered under a D&O policy.

Considering the increased costs and reduced coverage of D&O policies, many businesses are looking for alternatives. Some choose to reduce coverage, or in the case of Tesla, forgo D&O coverage and self-insure instead. Others are seeking captive insurance and bond coverage to breach the gap that typical D&O policies would cover.

Listen as our authoritative panel examines the current state of D&O liability, the extent and limitations of D&O policy coverage, the impact of COVID-19 on that coverage, and how renewal policies may be impacted. The panel will discuss lessons from recent cases regarding coverage disputes and potential pitfalls when reviewing and negotiating D&O policies.