COVID-19 and D&O Claims: What You Need to Know and Do Now
Tired of reading about Covid19? Me too. Want a break? Me too. But until we get one, here is another critical update from the land of risk management and insurance.
Understanding the claims-made nature of D&O policies is critical, especially right now. Many D&O policies do not contain exclusions for contamination, contagion or virus. At least, not yet. While real estate firms are currently trying to grapple with rent payments and tenant viability, there is a trickle-down effect to these events that will surely hit some D&O policies. That is, investor claims.
They may take the form of a ‘mismanagement’ or a ‘lack of proper disclosure’ claim. Attorneys are skilled at wordsmithing letters and complaints to trigger insurance policy coverage* and you want your D&O policy to at the least defend you, if and when that happens. *Note this is not intended to be a bash on attorneys. I am one!
The key word here is to defend. The complaint may fall flat on a legal basis. But for that determination to be made, you will likely need legal counsel to advocate on your behalf. And now more than ever, you don’t want those billable hours hitting your expenses. You want your insurance policy to pay for it. So what should you do to ensure that your D&O policy is ready to defend a COVID-19 action?
Answer: Perfect Your Notice – D&O policies allow an insured to provide the insurance company with a “Notice of Circumstance.” This notice is not the same as filing a formal claim. This is because the notice is filed in anticipation of a claim, when an insured has a supportable reason to believe that a claim is likely to arise from a known set of facts and circumstances.
- Step 1 – Work with your insurance broker and legal counsel to discuss your concerns and help determine whether a claim is likely.
- Step 2 - Have your insurance broker review your policy to determine the exact requirements to ‘perfect’ your notice. Policies typically require knowledge of a specific set of facts from which a reasonable person would conclude that a claim could result from said set of facts. You will next codify those facts and circumstances in support of your notice in a formal and concise letter to the insurance carrier.
- Step 3 - Be thoughtful about only stating facts and not the theoretical. This notice will become part of the file and discoverable. So just the facts, ma’am.
Rationale for submitting a Notice of Circumstance – If the insurance company concludes that the notice is proper, they will accept the notice (although they are under no obligation to do so). This effectively secures your right to defense and indemnity under the policy in effect when the notice was accepted. Great news!
Why Does This Matter? – Carriers will likely begin placing exclusions in renewal policies specific to viral contamination; they may be more broadly related to contagions, epidemic and pandemics. What we know for certain is that insurance companies, exclusionary endorsements aside, will seek to limit their exposure to such events in the future.
If you are tendered a Covid19 claim after your current policy expires and your renewal policy contains a contamination exclusion, that renewal policy will not provide you a defense. If, however, you succeeded in having that insurer accept your Notice of Circumstance, the expired policy will provide you defense and indemnity.
Remember, there are no standard D&O policies and knowing what yours contains and requires from a coverage and reporting stand point is never more important than when it may be called upon to provide your organization a financial lifeline.
- 6 Best Practices for Real Estate Owners During this Time of COVID-19
- Coronavirus Resources
- COVID-19 & the Potential Impacts on the Insurance Market
- Professional Liability: Claims Made vs. Occurence
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