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April 07, 2020

The Corporate D&O Implications of COVID-19

As the COVID-19 pandemic disrupts life in the United States and around the world, company after company has issued corporate statements regarding the virus.  

These statements are important. Given the rapidly changing and high stress nature of the situation, however, it is easy to say the wrong thing. In some cases, these statements could even open the door to directors and officers (D&O) exposures.

The Hardening D&O Market

D&O is a type of liability insurance that covers the directors and officers of a company. It covers a range of claims related to the management of the organization, including shareholder suits and breach of fiduciary duty.

As we’re currently seeing with many other commercial insurance lines, D&O rates have been rising. According to Property Casualty 360, several factors are at play, including securities action lawsuits with higher settlements, social issues including the #MeToo movement and leadership coverups, and growing cyber security issues.

Now COVID-19 could add to the list.

The Coronavirus Impact

According to Carrier Management, the COVID-19 pandemic is likely to impact D&O litigation. In fact, at least two lawsuits have already been filed. One is against Norwegian Cruise Lines, and it alleges that the cruise line used unproven or false statements about COVID-19 to encourage customers to purchase cruises. The other lawsuit is against Inovio Pharmaceuticals, and it alleges that the CEO made inaccurate claims regarding its work on a COVID-19 vaccine, causing the company’s stocks to soar before dropping.  

This may be just the beginning. As the pandemic continues, more lawsuits could emerge. Businesses should proceed carefully to reduce their liability.

Avoiding Lawsuits

As the COVID-19 pandemic continues, businesses must ensure that their corporate statements regarding the virus do not lead to liability issues.  

One of the problems that we’ve seen is that there’s a lot of misinformation surrounding COVID-19. Unproven – and sometimes dangerous – claims regarding treatment, cures and preventions have flourished on the internet. When a corporate statement includes misinformation, it could lead to lawsuits.

Another problem may stem from the desperation that some businesses are understandably feeling. The pandemic has been disastrous for many businesses. However, downplaying the threat will not make the problem disappear. Nor will exaggerating the strength of your own position.

Now, more than ever, it’s important that all corporate officers:

  • Watch out for misinformation. Use trustworthy sources, such as the CDC, for all information regarding COVID-19.
  • Be especially careful regarding any statements about treatments, cures or preventions that have not been FDA approved. Stick to verifiable facts.
  • Keep SEC regulations in mind. Before making public statements, consult with legal counsel and consider the liability potential.

Have questions about your company’s D&O protection? Contact the team at Heffernan Insurance Brokers.

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