An uptick in litigation targeting directors and officers is a likely consequence of the Covid-19 pandemic 

UK insurers are preparing for fresh class action lawsuits and coronavirus-related directors and officers (D&O) claims to be brought by shareholders, staff and customers after two legal cases were filed in the US recently.

This is according to Reuters. 

Both claimants in these cases accused companies of making misleading statements about coronavirus, their plans to sell products, or boost share prices. Similar cases could follow in Britain as well as other parts of the world.

“An uptick in litigation targeting directors and officers across industry sectors is one likely, and unwelcome, consequence” of the coronavirus pandemic, said James Whitaker, partner at law firm Mayer Brown.

Recouping the cost

Firms that face legal action use D&O insurance to pay their executives’ defence costs and any penalties awarded by the courts.

Although many classes of insurance, such as business interruption (BI) and event cancellation, exclude epidemics, D&O insurance usually provides cover - brokers said this could be a rare avenue for companies to recoup costs triggered by Covid-19.

The global market for D&O insurance across London, the U.S. and Bermuda provides around $600-700m of cover, cited Christine Williams, chief operating officer for broker Aon’s financial services group.

She added that recent years have proved challenging for D&O insurance, as legal cases and awards have mounted, pushing up premiums and reducing the amount of cover offered - the coronavirus outbreak would likely exacerbate this.

For example, one shareholder of Inovio Pharmaceuticals filed a class action complaint on 16 March against the firm and its chief executive, citing “misstatements” that the company had developed a coronavirus vaccine in three hours, according to Reuters.

Meanwhile, a securities fraud class action lawsuit was filed against Norwegian Cruise Line Holdings, its chief executive and chief financial officer on 18 March; this claimed that the company made misleading statements about the virus to encourage customers to book cruises.

Under pressure 

“The pressure on insurers will be significant, while the legal costs will also be huge,” said AFL Insurance Brokers chairman Toby Esser.

It could mean that insurers avoid covering such claims in future.

“We are starting to see insurers looking at the potential for specific Covid-19 exclusions going forward,” said Beth Thurston, head of management liability, UK and Ireland at Marsh.

Ian Roberts, managing partner of law firm Clyde and Co in Singapore, said D&O policies could exclude claims arising from bodily injury or illness - and that insurers may be considering this.

Lloyd’s and other London commercial insurers account for the bulk of D&O business.

However, the International Underwriting Association (IUA), the trade body for London commercial insurers outside the Lloyd’s market, said feedback from its members showed few were applying exclusions so far.

“This is a developing situation and things may change in the future, but currently the market appears to be evaluating exposures by asking more questions rather than simply excluding,” an IUA spokesperson said.