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Insurers Look to Limit Virus-Related Protections for Executives

April 6, 2020, 5:23 PM

Some insurers in the U.K. are considering a potential new exclusion in policy renewals that would limit protections for company executives and directors from coronavirus-related liability, according to draft language seen by Bloomberg Law.

Such policies, known as directors and officers (D&O) liability insurance, cover legal costs for corporate leaders if shareholders accuse them of mismanagement or misstatements. Policies already in place don’t have a pandemic exclusion, but the draft renewal language would deny coverage for claims based on the Covid-19 virus or other similar viruses.

A coronavirus carveout is considered unlikely to take hold in the U.S. insurance market, though underwriters are said to be asking companies about how the virus is impacting their business, with an eye toward raising policy rates or reducing limits as another way of accounting for the risk.

“We are aware that some D&O underwriters are attempting to add Covid-19 exclusionary language in their policies,” said Sarah Downey, who leads D&O insurance for brokerage firm Marsh. “In those limited circumstances, we are working hard on behalf of our clients to get the exclusions removed or narrowed.”

Insurance carriers are concerned that the coronavirus could burden the industry by triggering coverage under a number of policies, including D&O insurance meant to pay for lawsuits from investors.

So far investors have sued executives of at least two companies over their handling of the virus. Investors claim Norwegian Cruise Line Holdings Ltd.'s CEO and chief financial officer downplayed the virus’s impact on its business. A similar suit targets Inovio Pharmaceuticals Inc.’s CEO for touting a potential vaccine for Covid-19 that has since been called into question.

A law firm is also investigating Zoom Video Communications Inc. for potentially misleading investors after concerns were reportedly raised by the New York Attorney General about the videoconferencing platform’s security amid a surge in users.

Insurance Backstop

Normally D&O insurance covers these kinds of suits, and any resulting settlements, regardless of whether the claims against company leadership are based on a cyber breach, a sexual harassment scandal, or some other event.

“Directors and officers have a duty to do their job regardless of circumstance,” said Priya Cherian Huskins, senior vice president for management liability at insurance brokerage and consulting firm Woodruff Sawyer. “They expect a D&O policy would backstop them.”

She said it’s “troubling” that insurance policies would try to exclude the coronavirus from coverage.

Berkshire Hathaway “has no plans to include a coronavirus exclusion” in its D&O policies at this time, according to William Fahey, a senior vice president focused on executive liability at the firm’s specialty insurance arm.

Not every company impacted by the virus is expected to face a lawsuit that would involve D&O insurance, according to Kevin LaCroix, an attorney and executive vice president at RT ProExec, an insurance intermediary focused on management liability issues. But “there will be others” as the impact spreads throughout the economy, LaCroix said.

Shareholder suits based on large-scale events like the Covid-19 pandemic have become more common in recent years. Lawsuits that hinge solely on a company’s losses from a particular event often don’t fare as well as those that allege specific wrongdoing by a board or executive.

“Can you make a colorable argument that the directors were negligent in their oversight duty or their oversight response?” said Thomas Bentz Jr., a partner at Holland & Knight LLP. “It really has to be tied to something that the directors have done. It can’t just be that the virus hit and that’s all.”

To contact the reporters on this story: Andrea Vittorio in Washington at;Jacob Rund in Washington at

To contact the editors responsible for this story: Seth Stern at