Considerations for D’s & O’s- Risk Management in the Time of COVID-19

Sips of Information as Businesses Drink from a Firehose

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The coronavirus pandemic has rubbed salt in the wound of an already stressed Directors & Officers Liability (D&O) market.  Even before the outbreak, how many CFO’s, most notably of public companies, fell out of their chairs upon receipt of D&O terms?  Significant premium costs and high retentions are leaving many companies struggling to find a viable solution to protect their management teams, board members, and balance sheets.

Unless you’re Elon Musk.  In its 10-K/A filing yesterday, Tesla announced it would not renew its D&O coverage due to “disproportionately high” insurance premiums and that Mr. Musk would personally fund the coverage for a one-year period.  With Mr. Musk’s massive cash position and the binding agreement with the company, Tesla’s board signed off on the decision.

Unfortunately, most companies do not have the luxury of self-insuring and need to navigate the current choppy waters.  Getting well in front of renewals is highly recommended to give ample time to review options and structure alternatives if necessary.  There are myriad risk factors that D&O insurers consider when underwriting a risk, but at the moment, a huge focus is on cash position and business sector. Bankruptcy has always been a catalyst for D&O claims and while most businesses are facing financial pressure, retail, hospitality, and leisure industries (just to name a few) are looking at significant headwinds.

A hard D&O market requires an insurance broker with sizeable experience in the space to help companies position themselves to the right insurers, assess coverage issues that are of the greatest importance and to arrive at the best possible outcome from a cost/coverage perspective. Even for emerging companies, on-line applications promising D&O in one minute aren’t going to float in this environment.  Personal asset protection for individual D’s and O’s and the financial integrity of the company deserve more than a drive-thru service.  With over 25 years of niched focus, we’re ready to assist you with your needs.