It is quite clear now that we are living in unprecedented times for our globally interrelated economy. Indeed, the current estimates are that the financial impact of the present crisis will outstrip that of the banking collapse in 2007/8. It was during that time that we last witnessed close scrutiny of corporate governance, particularly in the financial institutions market.
Many of you will have experienced premium increases in your Directors & Officers Liability (D&O) or Management Liability Policies recently as we have been experiencing a spike in claims activity on both a national and international level.
The response to the COVID–19 virus is now starting to make significant impact on our business lives and how we run our companies. In the last week there have been at least two D&O claims made against company directors in the USA arising from the pandemic1.
Several articles have been produced by leading law firms across the world which set out the actions that company directors should be considering to mitigate the effects of the current crisis that we find ourselves in. The key themes emerging are as follows:
- All company directors should maintain the frequency and manner of board meetings – with the ‘C-Suite’, Executive and Non-executive keeping in close contact
- Reviewing the panel of external advisors to the board
- A thorough review of communications with employees, stakeholders, customers and any other institutions or individual that engage with the business
- A review of counter-party risk
- A review of all other potential risks to the business
- Maintenance of a calm and constructive environment
- Steps to protect and manage cashflow
- A review of credit facilities and the terms of relevant covenants
- Management of liquidity requirements – early engagement with banks could be beneficial
- A review of material contracts
- Check that D&O insurance is in place and review for adequacy
- Review Cyber policies in general. It is recognised that there is increased exposure now given the degree of remote access.
- Take the opportunity to analyse any new opportunities that may arise as a result of the changed business landscape
- Keep a firm grip on corporate governance
The above list is of course not exhaustive but gives a very real flavour of the issues that now face company directors. One Insurer that we have spoken with believes that their portfolio will face a challenge later in 2020 as a result of the COVID–19 situation.
The Government has also announced its relaxation of Wrongful Trading Legislation with effect from 1st March 2020, the suspension will last for three months. Whilst this may sound encouraging for company directors their ongoing fiduciary duty and duty of skill and care remains and, in the event of an insolvency the costs of forensic after the event investigations are unlikely to be much reduced.
In a further development certain Insurers and brokers have expressed concern that we may soon start to see the imposition of COVID – 19 exclusions on D&O policies, at PIB we will vigorously oppose this move on behalf of our clients.
We hope that you found this information to be helpful and of course PIB Insurance Brokers will be happy to advise on any aspects of your existing cover, conduct a policy review or investigate a new placement on your behalf.