With most policyholders focused on recoveries from business interruption insurance, you might not think this is the time to consider your company’s D&O policy. It is. What you do now can make a difference later when it comes to securing coverage for liability claims against your company, and its officers and directors, arising from the coronavirus pandemic.

Why think about D&O insurance now?

First, plaintiffs’ lawyers are always looking for an opportunity to generate event-driven litigation, particularly now when markets and companies are volatile. This can include claims that a company failed to implement proper risk management measures, or misrepresented the status of its business or the potential impact of the pandemic. These types of claims have already been filed. See Douglas, et al. v. Norwegian Cruise Lines, et al., No. 1:20-cv-21107 (S.D. Fla.) (securities fraud class action alleging false statements about implementation of preventive measures and effect on future bookings); McDermid, et al. v. Inovio Pharm., Inc., et al., No. 2:20-cv-01402 (E.D. Pa.) (securities fraud class action alleging false statements about development of COVID-19 vaccine).

Second, there has already been significant discussion within the insurance industry that certain carriers are considering adding new exclusions to new or renewed insurance policies for claims arising from COVID-19 or other infectious diseases. The extent and breadth of these potential exclusions is not yet known, but substantial efforts should be made during policy renewal and marketing negotiations to avoid entirely or, reduce the scope of these potential exclusions.

Third, D&O policies are claims-made policies. That means the policy in place when the claim (e.g. litigation, investigation or demand against an insured) is made will be the policy that responds to the claim, with an important exception: If a valid notice of circumstances likely to lead to a claim is given under an earlier policy, the claim will relate back to the earlier policy.

The option to give notice of circumstances is an important policyholder protection. As policies are renewed, your carrier could add new exclusions for future claims related to infectious disease, as discussed earlier. Giving a notice of circumstances before your current D&O policy expires could lock in coverage and avoid new exclusions. Careful consideration of policy language and attendant circumstances is necessary to determine when and whether to provide this notice during the current policy period. The right strategy should be informed by such factors as the available policy limits, whether other claims or circumstances have been noticed and accepted in the current policy period, whether a different insurance carrier will provide the renewal coverage, and the necessity and nature of an application and warranty statements required at renewal.

Fourth, small differences in policy language can be critical to coverage. Now is the time to review your company’s D&O policy to identify and understand provisions that could be cited by insurers as a basis for denial of coverage in the COVID-19 context. For example, the specific wording contained in common policy exclusions for bodily injury, property damage or pollution can vary significantly between policies, and those distinctions can mean the difference between a claim being paid or fought by the insurer.

The bottom line is this: These are extraordinary times, and you should not make any assumptions about your coverage. Details matter. Expertise matters. Let us know if we can help.

*             *             *             *

Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. We will continue to evaluate the CARES Act, related regulations and any subsequent legislation to provide our clients guidance in real time. Please visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

Photo of John Failla John Failla

John Edward Failla is a partner in the Insurance Recovery & Counseling Group. With more than twenty years of experience focusing on insurance recovery for business policyholders, John has the practical and legal experience to assist clients in managing business risks and solving…

John Edward Failla is a partner in the Insurance Recovery & Counseling Group. With more than twenty years of experience focusing on insurance recovery for business policyholders, John has the practical and legal experience to assist clients in managing business risks and solving business problems.

John has helped clients recover more than a billion dollars from their insurers through litigation, alternative dispute resolution or negotiation in some of the most significant insurance matters involving a wide range of issues.

Photo of Marc Eric Rosenthal Marc Eric Rosenthal

Marc E. Rosenthal is a partner in the Insurance Recovery & Counseling Group. He has significant experience as a litigator and corporate adviser who focuses on issues of insurance and reinsurance. Marc is listed in Chambers USA, in which he is described as…

Marc E. Rosenthal is a partner in the Insurance Recovery & Counseling Group. He has significant experience as a litigator and corporate adviser who focuses on issues of insurance and reinsurance. Marc is listed in Chambers USA, in which he is described as, “key to bringing closure to many important negotiated settlements. He is quick to understand the positions and to recommend innovative ways to achieve resolution, and he follows this up with prompt and effective agreement preparation.”

Marc represents clients in insurance coverage matters involving first party, third party, D&O, environmental, toxic tort, business interruption, advertising injury, general liability, and professional E&O coverage; reinsurance arbitration; commercial litigation; mediation; negotiation; coverage analysis; and claims counsel.

Photo of Nathan Lander Nathan Lander

Nathan Lander is a partner in the Insurance Recovery & Counseling Group who represents clients in high-stakes disputes with their insurance companies as well as counseling them regarding a wide array of insurance issues.  Clients have praised Nate in Chambers and The Legal

Nathan Lander is a partner in the Insurance Recovery & Counseling Group who represents clients in high-stakes disputes with their insurance companies as well as counseling them regarding a wide array of insurance issues.  Clients have praised Nate in Chambers and The Legal 500 as “having extensive knowledge regarding insurance coverage issues,” providing “sound strategic advice in navigating difficult coverage disputes, and litigation strategy,” and being “responsive, knowledgeable and creative,” a “zealous advocate” and “absolutely amazing to work with.”

Nate is an experienced litigator and trial attorney. He represents policyholder clients – including Fortune 500 companies, asset managers, and professional sports teams, among others –in litigations, arbitrations and mediations with their insurance carriers. During the course of his career, Nate has assisted clients in recovering more than $1 billion in disputes with their carriers.

Nate also previously served as a Public Service Attorney for the Manhattan Tort Division in the Office of the Corporation Counsel of the City of New York. In that position, he was lead trial counsel in numerous cases brought against the City of New York in Supreme Court, New York County, as well as in Kings County. He defended the city as lead trial counsel in a variety of cases, ranging from allegations of negligence by city employees to allegations of police misconduct.

In addition to his litigation practice, Nate frequently advises clients on risk management issues, including structuring of insurance programs and the negotiation and drafting of policy language. Nate also advises clients on insurance-related issues in the context of various corporate transactions. Although Nate counsels clients in all industries, he has particular experience advising clients in the asset management space, including private equity firms, hedge funds, registered funds, and venture capital firms.

Photo of Elise Yablonski Elise Yablonski

Elise A. Yablonski is a versatile litigator with trial and appellate experience in a wide variety of legal contexts, including business torts, trade secrets and unfair competition, professional malpractice, insurance recovery and fiduciary litigation. Her recent pro bono experience includes litigation under the…

Elise A. Yablonski is a versatile litigator with trial and appellate experience in a wide variety of legal contexts, including business torts, trade secrets and unfair competition, professional malpractice, insurance recovery and fiduciary litigation. Her recent pro bono experience includes litigation under the Hague Convention on the civil aspects of international child abduction.

Elise authored Chapter 40, titled “Trial Preliminaries and the Opening Statement,” for the third and fourth editions of Robert L. Haig’s treatise entitled Commercial Litigation in New York State Courts.