August 11, 2021
D&O is one of many commercial lines in a hard market. From 2004 to 2019, the line of business had soft market conditions, when rates continuously decreased as a result of the high capacity in the market. Eventually, losses began to mount as insurers continued writing the line and many markets have ceased writing D&O completely.
In Canada, we are now in our second year of turning around the directors and officers industry. As new capital enters the D&O market and people begin writing the insurance again, competition will increase and premiums may decrease.
Still, the industry can expect to undergo a period of adjustment for at least the next year. In the meantime, brokers should keep watch on the emerging trends in the D&O market. These are the top four trends we are seeing in this market in 2021.
1) D&O Liability Emerging From Cyber Claims
In the past year, the industry has encountered cyber claims involving directors and officers, according to Canadian Underwriter Magazine. (1) Cyber claims include scenarios such as those claiming directors and officers should have provided better protection for their companies, for example. Another common claim of this kind is that the D&Os made a poor business decision by not paying a ransom demand to avoid higher costs. A director or officer may be involved in a D&O claim even if cyber was the initial factor behind the claim.
2) An Evolving Plaintiff's Bar
Plaintiffs' attorneys have become more proficient in bringing class-action lawsuits, breach of fiduciary duty cases, and even employment-related suits that could be covered by a D&O policy.
Social inflation is at the center of this trend. In Canada, the plaintiff bar has become much more sophisticated and able to file claims for both class action lawsuits and breaches of fiduciary duties or even employment disputes for which D&O policies still provide coverage in the majority of cases (1).
Just because there's a claim doesn't mean the defendant has done anything wrong. Many claims have been filed where the defendant followed all the procedures they were supposed to, and the plaintiff was still upset and sought recourse. And as plaintiff lawyers become more familiar with D&O coverage and policy wordings, they may be able to qualify for coverage by exploiting any gaps. In response to more sophisticated plaintiff lawyers, insurance companies have increased their level of in-house counsel.
3) D&O Liability Prices Rise Due to Workplace Sexual Harassment and Discrimination Claims
Among the reasons for significant increases in directors' and officers' liability rates are lawsuits claiming harassment or discrimination. Brokerages serving privately-held insureds are seeing an increase in age and gender discrimination claims and workplace harassment claims under D&O policies.
Losses in D&O lines for privately held clients are more of a frequency issue than a severity issue. There aren't a lot of million-dollar claims here, but Canadian employees are more aware of their workplace rights and more likely to bring litigation against their companies, which impacts D&O management. (2)
Comparatively, the percentage of lawsuits filed against directors and officers for publicly traded companies is more influenced by shareholder lawsuits following a significant drop in the share price. The shareholders claim that the firm misreported its true financial status at some point.
4) A New Way to Ensure Coverage During the Pandemic
D&O has a long road to recovery. As a result of the growing COVID-19 outbreak, underwriters are also inundated with coverage requests. According to an expert, brokers need to give twice as much lead time to underwriters these days to secure D&O coverage for clients. (3)
About SWG PL: Directors & Officers
SWG PL - Directors & Officers Liability insurance pays on behalf of individual directors, officers, trustees, volunteers, employees, and members of any duly-constituted committee damages and expenses in the event they are sued in conjunction with the performance of their duties with the corporation. The indemnity includes defense costs and damages that the corporation cannot pay, either because indemnification is not permitted, or the corporation is not financially able to do so. The policy will pay on behalf of the corporation for those amounts the corporation is required or permitted to pay on behalf of its insured persons.
The policy provides full entity coverage for the corporation itself by paying on behalf of the corporation the defense costs and damages that it is legally obligated to pay.
● Affirmative coverage for: Employment Practices Liability (EPL), Third Party Wrongful Act, Personal injury and Publishers Liability
● Broad definition of claim include Demands for monetary damages, non-monetary or injunctive relief, civil, criminal, administrative, regulatory, mediation or arbitration proceedings. Civil, criminal, administrative or regulatory investigations. Extradition proceedings. Any request to toll or waive the statute of limitations
● All-in-one policy includes D&O, Entity, Employment Practices, Fiduciary and Outside Directorship coverages
● Legal Assistance Hotline
● Claims made policy
● Prior acts coverage is built in the wording and extends back to the inception date of the first D&O Liability policy
● Duty to defend
● Costs in excess
● First dollar defense (deductible not applicable to defense costs)
● Waiver of deductible in the event of no liability
● Worldwide coverage
● Broad definition of Insured include the non-profit corporation (entity coverage), any past, present and future deemed or “de facto” directors, officers, trustees, employees, volunteers and any committee members
● Broad definition of claim
● Broad definition of Wrongful Act includes Employment Practices, Third Party Employment Practices, Personal Injury and Publishers Liability
● Corporate brand protection – Crisis management event expenses coverage
● Corporate investigation costs coverage
● Pollution defense costs
● Excess coverage for Side A (Directors and Officers)
● Non rescindable Side A
● Bi-lateral discovery period
● Order of payments
● DeFacto Executive Extension
● Final adjudication language for personal conduct exclusions
● Deletion of hammer clause
● Spousal and domestic partner coverage
● 100% defense costs allocation
● 60-day notice for non-renewal
● Multi-year policies – annual aggregate, annual installments
● Fiduciary Liability – options for shared or stand-alone limits
For more information, visit our product page: https://swgins.com/product/directors-and-officers.html
Content is current as of the date of broadcast and is subject to change without notice.