D&O and EPL Coverage: How COVID Has Impacted Private Company Insurance

COVID-19 has impacted almost every area of our lives at home and our businesses. It has also impacted private companies’ ability to obtain, renew, or pay for D&O and EPL Insurance, even as COVID-related claims are rising.

Directors & Officers insurance protects company officers and directors if they make mistakes or poor decisions as they operate the business. Employment Practices Liability provides coverage for any issues arising out of employment practices, such as safety, discrimination, sexual harassment, and wage and hour disputes.  COVID has significantly shifted the landscape of these insurance markets so that businesses face increased premiums, greater underwriting scrutiny on renewal policies, and less carrier willingness to write new policies. 

Rising Claims

COVID-19 related lawsuits are increasing, which means increased claims against D&O and EPL policies. These lawsuits typically occur because COVID cases have been prevalent in company facilities, or companies have experienced operations disruptions and financial issues and have reduced employee work hours. Employees also are alleging the company failed to take the proper steps to reduce health and safety risks when they returned to work or discriminated against them if they expressed concerns about safely working on premises during the outbreak.
Companies also are experiencing privacy violation lawsuits; for example, when an employee tests positive for COVID, and, in contact tracing, the employer discloses the name of that employee. Employees who have to work in close quarters also are sometimes filing mental anguish lawsuits even if no one contracts the disease.
Bankruptcies also are beginning to increase, and bankruptcies often result in claims against D&O policies. As the pandemic continues, the number of these lawsuits will continue to rise. The rise in claims presents a greater risk to insurers, and they, in turn, are adjusting their business practices to avoid financial difficulties themselves.

Higher D&O and EPL Premiums

Private companies are currently seeing their D&O premiums rise an average of 10 percent to 20 percent, and EPL premiums rise an average of 6.3 percent because insurers perceive more financial risk. Executives may need to choose between broader coverage that better protects them during the pandemic or saving money.

Insurers also are providing less coverage. For example, some have reduced policy maximums and eliminated certain coverage types, such as exposure and certain wage and hour clauses. A few insurers exclude any issues that stem from infectious diseases, although this exclusion is still rare. Other insurers are excluding bankruptcy.

Increased Underwriting Scrutiny for Renewals

Small business executives should be prepared to answer more questions when renewing their policies. In particular, you’ll likely be asked about all the direct and indirect impacts related to COVID, how you are ensuring employees’ safety and compliance with regulations, and whether you consult attorneys when making significant employment-related decisions.

You may want to reassess employment reduction decisions made previously to see whether they could be viewed as having been hasty or ill-advised. Companies that lead with compassion may have the best shot at renewing without facing higher than average price increases or coverage exclusions. Also, be prepared for the renewal process to take longer and that you may not be able to attain coverage enhancements.

 

New Policies

If you seek a policy for the first time, be prepared for even more scrutiny than those who are renewing. Be prepared to document how you are following all safety and health regulations and keeping track of any changes in these regulations. Avoid focusing exclusively on COVID-19, but also be prepared to discuss how you are mitigating all risks. Market your safety efforts with quantitative information, but also with qualitative information such as the availability of company executives.

Document your financials and any ways in which you are making adjustments to stay financially healthy. Be prepared to discuss your key clients, past performance, and future business plans. Be prepared to pay more than expected.

 

Consulting D&O and EPL Advisers

Having D&O and EPL insurance is more important than ever during the pandemic. Consulting with an insurance professional can help you prepare for renewals or to buy your first policy. We specialize in the small business insurance needs of technology companies and consulting firms. We can help you find the best policy for your needs at the best price. Contact Fortside today.

If you have questions about D&O and EPL insurance or would like more insight on which coverage would be best for your specific needs, get in touch.