Directors’ & Officers’ Liability & COVID-19
During this challenging time, private and public companies are assessing the uncertainty of their financial and operational risk. It’s possible that Directors’ and Officers’ insurance policies will be called upon more in these hard times to offer protection to management.
Below is a snapshot of the liability implications of the COVID-19 virus on Directors’ & Officers’ (D&O) Liability insurance and Employment Practices Liability (EPL) insurance policies.
Directors’ and Officers’ (D&O):
a) In the USA, the SEC has encouraged companies to disclose the risk and impact of COVID-19 on their operations. Hundreds of public companies such as Levi Strauss & Co, United Airlines Holdings Inc, Royal Caribbean Cruises Ltd., and PapaJohn’s International Inc. have mentioned the new COVID-19 in the “risk factors” section of their periodic reports and prospectuses.
However, in Malaysia on 26th March 2020 – Bursa Malaysia Berhad (“Bursa Malaysia” or the “Exchange”) announced a new set of relief measures targeted to a broader group of participants within the capital market.
These measures are designed to help lessen the financial burden and provide greater flexibility in navigating the challenging period posed by the COVID-19 pandemic. This includes the Automatic 1-month extension for submitting financial statements, details of this announcement are available in the Bursa Malaysia portal.
b) In the forthcoming period, we foresee claims by investors against companies who fail to provide full and proper disclosures relating to their risk profile and risk management around COVID-19.
We expect to see more shareholder claims against management’s failure to provide a prudent and sufficient response to the deteriorating situation, failure to arrange for alternative supply arrangements or failure to accomplish business targets thus eroding shareholders value. Shareholders may also initiate claims alleging failure to provide alternate technology or mechanisms and tools to ensure continued customer support and business "as usual."
c) Customers may allege for non-performance of contracts condemning the management for failure to perform their obligations under these contracts. This however is to be regarded as ‘force majeure’ provision under the relevant contract clauses and requires a professional legal opinion.
d) Claims may arise from regulators for non-compliance with regulatory orders to shut down operations, or any other rules concerning employee safety or other administrative orders regarding the outbreak.
e) We may see more claims against companies for failing to implement appropriate cyber security measures and / or failing to appropriately respond to cyber-attacks.
Employment Practices Liability (EPL) - Employees may file suits against employers for:
- Failure to provide adequate sanitation and hygienic work conditions
- Lack of communication, or communications that are unclear in terms of company direction, operations and the way forward during the pandemic, causing low morale and confidence levels amongst employees towards the management
- Alleged wrongful termination in response to job cuts
- Unfair treatment by employer when not all staff are able to perform their duties during the pandemic situation
By and large, whether is D&O or EPL and the applicable insurance policies – it is advisable to review your specific policy coverages and exclusions. Howden’s Financial Lines team stands poised to offer guidance relating to the COVID-19 risks and its impact on your insurance policies.
Nur Liyana Adnan
Mobile No: + 6 017 6752465
Yeo Koe Shin
Mobile No: + 6 012 3135613