As D&O liability risks skyrocket, rates are following

Posted by John Cofini on Thu, Jul 16, 2020 @ 03:54 PM

D&O-liability-insuranceDid you know nearly one out of every 11 companies gets sued?

Statistics show that between 36 and 53 percent of small businesses are involved in at least one litigation in any given year and 90 percent of all businesses are engaged in litigation at any given time.

Those are frightening statistics. The risks of getting caught up in a liability suit today are broader and greater than ever, and those risks impact virtually every industry. It’s like maneuvering through a minefield for business owners. That’s why Directors & Officers (D&O) liability insurance is becoming an essential risk management tool.

What is D&O coverage and why would you need it?

D&O liability insurance protects the personal assets of corporate directors and officers in the event they are personally sued by employees, customers, competitors, vendors, or investors for actual or alleged wrongful acts in managing a company. Here are some of the most common reasons for those lawsuits:

  • Breach of fiduciary duty resulting in financial loss or bankruptcy
  • Misrepresentation of company assets
  • Misuse of company funds
  • Fraud
  • Noncompliance with workplace laws
  • Theft of intellectual property
  • Lack of corporate governance

Do you need this coverage? Maybe, maybe not. But don’t make the mistake of believing D&O claims only happen to public companies or corporations with deep pockets. Public, private, and nonprofit companies all face D&O risks. If your company has any type of corporate board or advisory committee, a D&O policy is probably a good idea, especially now.

D&O claims are exploding. Here are three major factors driving the trend:

  • Securities class action lawsuits. In 2017 and 2018, the number of securities class actions filed in federal court broke new records, and the volume has doubled since 2014, according to NERA Economic Consulting. According to The Wall Street Journal, there were 217 securities class action suits in 2018 and settlements increased 71 percent, from $1.4 billion in 2017 to $2.4 billion in 2018.
  • Sexual misconduct claims. The #metoo movement has shined a new light on sexual misconduct and led to a flood of employment practices liability (EPL) claims against executives. And since sexual misconduct cases often end up exposing a company’s efforts to cover it up to protect their reputation, D&O claims are on the rise too.
  • Growing cyber risks. If your company experiences a serious data breach and you’re caught without cyber insurance, your directors and officers could be included in a liability suit.

It all adds up to rising premiums for D&O policyholders.

With the risk environment becoming more volatile all the time, rate hikes for D&O coverage are the new normal. In fact, business owners are paying significantly more for this coverage for the first time in years, and industry experts predict the trend will continue. Businesses are seeing rate increases from 10 to 50 percent, with a few seeing even higher rates. Firms with a recent initial public offering, financial troubles, or a troublesome claims history are seeing particularly significant increases. Some healthcare firms are even seeing 100 percent rate increases.

And then came COVID.

The COVID-19 pandemic is only adding to the uncertainty, as liability claims could arise from coronavirus exposure among employees, a company’s response to the pandemic, providing misleading information about it, and other scenarios.

What can employers do?

With Employment Practices Liability (EPL) and D&O liability closely tied, it’s vital to periodically review your employment practices top to bottom to make sure you’re complying with all laws and regulations. Make sure you’re creating a work environment your employees feel safe in. And take cyber threats seriously.

Finally, it’s crucial to partner with an insurer who understands today’s risks and your business, one who can get you the best D&O coverage at the best rate. At BNC Agency, we can help. Contact us today.

Tags: D&O liability, D&O liability insurance