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Article | FINEX Observer

Client Alert – D&O risk and Coronavirus: Proactive considerations

Financial, Executive and Professional Risks (FINEX)
COVID 19 Coronavirus

By John M. Orr | March 4, 2020

Companies with public disclosure obligations should evaluate the degree of materiality of any direct or indirect operational or financial risks presented by the spread of COVID-19 (coronavirus) and the extent to which the risks should be disclosed.

The spread of COVID-19 (coronavirus) has given rise to a global focus on numerous risks – risks associated with personal and public health to be sure, but also to infrastructure and business risks. Importantly, the phenomenon forces companies with public disclosure obligations to evaluate the degree of materiality of any direct or indirect operational or financial risks presented by the spread of COVID-19 and the extent to which the risks should be disclosed. This obligation has the potential to impact companies in numerous industries, as well as companies sourcing products or resources in affected locations.

From the perspective of directors and officers (D&O) liability insurance, at least one concern is that inadequate disclosures involving such a widely publicized global health event can give rise to securities litigation should there be a related material drop in a company’s stock value. As of this writing, we are not yet aware of such litigation being filed in connection with COVID-19; however, should there be such filings, they would likely be similar to what D&O professionals refer to as “event driven” litigation, that is, securities litigation deriving from losses in stock value allegedly due to inadequate disclosures surrounding high profile, adverse events. To date, examples have included natural disasters, product recalls, large scale cyber breaches, and #MeToo incidents.

Over the past several years, in combination with traditional “missed earnings” cases, D&O insurers have incurred losses associated with different types of historically unique cases, such as the event-driven litigation discussed here, IPO litigation filed in both state and federal courts, and federally filed M&A objection litigation. This, in addition to other market factors, has resulted in the first sustained hardened D&O insurance marketplace in almost 20 years.

We urge companies with the potential of operations or financial results being impacted by COVID-19 to confer with their counsel on the scope and timing of advisable risk disclosures. We also urge them to confer with their insurance brokers to review their D&O programs – and any and all other impacted corporate insurance programs – including program structures and policy wording. Such proactive measures can enhance the likelihood of comprehensive policy recovery should a claim arise.

For additional insurance coverage discussion from Willis Towers Watson on the impact of Coronavirus, please see our post, “Would insurance policies cover losses related to coronavirus?


Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates.

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