Public Company D&O Insurance
Serving on the board of a public company is challenging. Decisions need to be made intelligently and in consideration of shareholder interests and regulatory compliance which is constantly changing. Even the most compliant, diligent companies operating entirely within their legal and regulatory framework, can feel as though litigation is always lingering, often because it is. With each new landmark ruling such as Cyan, Haliburton and Omnicare, that legal landscape shifts, as new doors for litigation are open. Combine that shifting landscape with litigation trends, regulatory initiatives such as “the Yates memo”, the SEC pursuing more actions through ALJ’s (administrative law judges), cyber related follow-up derivative claims, and litigation financing - and an already dynamic environment becomes increasingly complex. With directors and officers personal assets at stake, this can be unsettling. And claims asserted against the c-suite don’t require teeth to cause damage – even seemingly frivolous accusations can be costly, time consuming and brand damaging.
We recently published a that outlines the current risk landscape public company directors and officers will have to navigate. To summarize our publishing:
- Securities class action filings have decreased slightly from previous years' record highs but Covid related litigation will continue to generate lawsuits, and a surge in SPAC related litigation is expected.
- Regulatory investigations and enforcement actions are more aggressively targeting individual directors/officers.
- Cyber events and privacy failures are resulting in costly regulatory investigations and fines
- Cyber/Privacy failures and sexual misconduct allegations are resulting in event-driven shareholder action in the form of follow-on derivative claims and shareholder class actions. The surge in ransomware, which is only expected to continue as a result of the Ukraine conflict will also drive more securities litigation.
- Emerging industries including crypto-companies and cannabis companies are encountering a difficult D&O market
- Companies planning IPO’s may continue to encounter turbulent and costly litigation as a result of the Cyan ruling
- The SEC's new initiatives are posing additional challenges. A new focus on ESG disclosures will generate new enforcement actions and litigation alike. Public companies will need to carefully review their D&O policy's pollution exclusions in order to ensure coverage is in tact. The SEC also appears to be readying new cyber incident disclosure requirements which will impose strict reporting requirements of materiel cyber incidents and any ransomware payments.
As most public companies are already aware, thorough protection of its officers requires a multi-faceted program which should include; strong corporate governance and internal controls, well drafted bylaws & indemnification agreements and carefully structured D&O insurance. Executives seeking the broadest level of protection should also consider the inclusion of a separate Side-A DIC policy which provides a number of benefits as outlined ().
As a relationship driven brokerage focusing on management liability and D&O insurance, GB&A is particularly well aligned to meet the liability needs of small public companies including micro-cap, nano cap, those trading on OTC markets, and pre-IPO companies. While our passion for executive liability helps us address current risk trends and emerging exposures - our deep knowledge helps us tailor our clients' D&O programs to best respond those risks. Some of the services we provide include:
- Program analysis, coverage comparison and policy coordination
- Thorough carrier saturation allowing us to reach a wide range of insurers when securing proposals
- Negotiation of coverage terms, clauses and policy language
- Benchmarking to assist with limit setting using peer groups as reference points
- Assessment of insurer’s credit rating, claim experience and international coverage capabilities