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2021 Trends for Directors & Officers liability insurance

It is not just public companies or the energy sector being hit hard with Directors & Officers liability insurance claims and premium increases. Read our in-depth review on trends for Directors & Officers liability insurance. The worldwide D&O market continues to experience difficult and hard market conditions, particularly for dual or US traded companies​. According to Chubb Insurance the last 13 years have seen significant changes affecting Directors and Officers (D&O) risk following the 2008 global financial crisis.

Increased legislation and greater regulatory scrutiny in the United States, Australia, Germany and in other key centres for business, has prompted a sharp increase in litigation against companies. The Covid-19 pandemic along with other world circumstances has also created event-based surge in class action lawsuits.

Following is an overview of the emerging risks and trends Canadian companies should be paying attention to in order to mitigate risk for Director’s, Officers and the financial well-being of the company.

Changes in the landscape

In 2019 there were approximately 5,800 companies listed on the US Exchange (NYSE/Nasdaq) 428 class actions were filed against companies listed on the two exchanges. This is the most core filings (excludes M&A) on record.

Core filings are securities suits seeking class damages and reflect cases that are often triggered by nothing more than a drop in stock price or can be driven by a securities act that provides investors with the ability to hold issuers, officers, underwriters, and others liable for damages caused by untrue statements or material omissions of fact within registration statements.

The average settlement value in 2020 was $44 million, more than a 50% increase over the 2019 average of $28 million.

Trends in D&O risk and premiums increases

If renewal premiums are still attached to historically low/soft market rates, larger increases are being sought in line with market corrections even for companies with strong risk mitigation profiles​.

  • All Insurers are looking to manage and limit deployment, increase their retentions, and materially increase premiums.
  • Insurers globally, have been supporting low/soft market premium levels, coupled with large claims and losses paid, resulting in many insurers eliminating D&O coverages (i.e. Allianz Canada, RSA, Several Lloyds Syndicates etc).​
  • For Insurers who remain, underwriting capacity has significantly changed in order to regain profitability and avoid portfolio failure​.
  • Premium increases typically start at 40%+ for well performing/low risk industries​.
  • Difficult industry classes or financially challenged business are experiencing larger increase, up to 75-100% or greater. ​
  • Overall, D&O claims have historically been a severity risk, however in recent years there is an alarming pattern of both severity and frequency.

Reasons behind D&O claims increases

Chris Ball, CEO, Reliance Insurance reports, “As losses and claim costs rise Insurers are experiencing pricing inadequacy. Price corrections saw a sharp increase in 2019 and we expect to see a pricing corrections continue to keep pace with loss costs as Insurers aim to improve or create the profitability of their book.”  Many factors led to this price adjustment in the last three years.

  • Level of complexity – it is getting more expensive to defend and settle.
  • New and emerging risks – increasing risk exposures for both public and private companies.
  • Increased D&O claims – more and more industries are seeing increases in claims. Along with global trends in individual culpability.
  • Increase in the number of class actions filed.
  • Defense costs – have more than doubled.
  • Regulatory, activity and security – there is a global movement for compliance and accountability, making it easier to launch claims.
  • There is a growing trend towards seeking punitive and personal legal action against officers for failure to follow regulations and standards.

D&O insurance can be used to recover defense costs and financial losses, as well as costs incurred by administrative, investigative and criminal proceedings.

Emerging risks – what is driving the increase in D&O claims?

1. Establishing, developing and emerging global risks

  • Cyber, data and privacy risks – Cyber risks transcend geographical boundaries.
  • Sexual misconduct – #metoo
  • Cryptocurrencies – Currently, the transfer, purchase and sale of cryptocurrencies is largely unregulated but the question of whether they should and how this could be done is a priority for many regulators.
  • Climate change – Mismanagement of climate risk or breach of fiduciary duties in not considering the financial risks associated with climate change.
  • unordered list item one
  • Failing to comply with legislative reporting requirements or disclosure liabilities.
  • Disseminating false, misleading or incomplete information on climate risks.
  • Environmental impact of the company.r
  • Failing to protect the coHuman slavery in the supply chain.
  • Mergers and acquisitions.
  • Use of technology and artificial intelligence.

2. Increased shareholder activism
Investors are driving corporate behavior and defining culture. Following in the footsteps of a robust shareholder activism in the US, the trend is on the rise globally. Shareholders are influencing corporate conduct and decisions in the form of buying corporate sharest o influence decisions, privately approaching the board, using social media and public announcements to propose action and threatening lawsuits over ignored concerns.

3. Growth in popularity of litigation funding
In recent years, litigation funding has provided the opportunity for representative plaintiffs and law firms to launch class action lawsuits that previously may not have been feasible. Although, Canada is not a litigious as the US, as of August 2020, Omni Bridgeway’s Canadian ( a third party funder) business has received over 560 applications for funding.

4. Employee driven lawsuits
In private companies, the majority of lawsuits against directors and officers are related to employment matters.

According to AIG (America/Canada) it is not uncommon to see Breach of Fiduciary Duty.
One example of a recent suit is an employee sued her employer for breach of fiduciary duty since the company did not perform background checks on employees prior to hire. The plaintiff alleged that she was assaulted on her employer’s work premises by another employee. Additional allegations included intentional infliction of emotional distress, breach of employment contract, and false imprisonment. The loss amounted to approximately $320,000.

5. Increased regulatory activism
Politicisation of the regulatory process and a global leaning towards individual accountability. Boards are being held accountable for their failure to recognise, manage and mitigate risks. And there international cooperation amongst international regulators to hold boards accountable.

6. The broadening of criminal exposures 
Historical criminal exposures pertained to corporate fraud, breaches of securities laws, bribery and corruption and antitrust laws. But now there is more broadening of corporate criminal liability related to health, and safety and environmental failures. Coupled with the “failure to prevent” accountability.

7. Insuring multinational D&O liability
Canadian provinces Quebec, Saskatchewan, British Columbia and Manitoba – and almost every state in the USA and countries including Brazil, China, Mexico, Japan, either impose strict conditions on insurance companies operating within their borders or prohibit the purchase of insurance for local risks from insurers not licensed or authorized there. In such cases, the company can mitigate this compliance risk by purchasing local policies covering all three areas of D&O risk, in addition to a master parent policy.

Investors are driving corporate behavior and defining culture. Following in the footsteps of a robust shareholder activism in the US, the trend is on the rise globally. Shareholders are influencing corporate conduct and decisions in the form of buying corporate sharest o influence decisions, privately approaching the board, using social media and public announcements to propose action and threatening lawsuits over ignored concerns.

Insurance can be used to recover defense costs and financial losses, as well as costs incurred by administrative, investigative and criminal proceedings.

Risks covered
The aim of D&O insurance is to provide financial protection for managers against the consequences of actual or alleged “wrongful acts”. There are different risks in different markets, but common risks include:

  • Employment practices & HR issues
  • Shareholder actions
  • Reporting errors
  • Inaccurate or inadequate disclosure (e.g. in company accounts)
  • Misrepresentation in a prospectus (Prospectus liability [POSI])
  • Decisions exceeding the authority granted to a company officer
  • Failure to comply with regulations or laws
  • Cyber risks
  • Pension trust liability
  • Employment practices liability
  • Criminal defence cost insurance

Key questions for directors regarding D&O risks

When asked to sit on a board there are many considerations for a career executive to consider before taking the appointment. Make sure any organization you are involved in has the right D&O insurance coverage related to the inherent risks.

  • What are the protocols of the business in terms of assisting a director should they be named in litigation?
  • In what country is the primary policy held and will it cover local claims?
  • Has the corporation done a recent substantive review related to multinational trends, insurance coverages, liability, indemnification and protections in the last 3 years?
  • Will legal fees and costs of litigation be paid by the company or will the director have to pay costs and then seek reimbursement?
  • Will the company purchase a policy specifically for individual directors to protect their personal liabilities?

Executives and directors need to ask tough questions about compliance related topics such as sanctions, embargoes, tax haven registrations, price-fixing and fraud and learn more about “classic” D&O exposures such as M&A, capital measures, conflicts of interest and IPOs. D&O coverage can be complex, so ensure key risks are covered. Any company with a board of directors should have an internal risk management structure in place with formal written policies, and measures in place to adequately address or prevent claims against directors and officers. Now is not the time to ask if a D&O policy is warranted, but companies of all sizes should be looking at risk mitigation and what it will cost to mitigate that risk with a D&O insurance policy.

Resources for Trends for Directors & Officers liability insurance
  1. Reliance Insurance Benchmarking Presentation 2021-2022 – Mining Sector
  2. The Third Party Litigation Funding Law Review: Canada\ Hugh Meighen
    Borden Ladner Gervais LLP 10 January 2021
  3. AIG- Private Claims
  4. Allianz: Directors and officers insurance insights 2020.
  5. Chubb: Private Company Risk Survey: D&O Risks and Risk Management
  6. Canadian Underwriter: Why the D&O market will probably get harder. 

trends for Directors & Officers liability insurance



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