Pandemic-related securities lawsuits evolve | Business Insurance

The far-reaching consequences of the COVID-19 pandemic, which has upended the lives of so many, also extend to corporate boards and directors’ and officers’ liability concerns.

While COVID-19-related lawsuits targeting publicly traded companies have largely failed, organizations still face directors’ and officers’ liability risks related to the pandemic, experts say.

“We were seeing publicly listed companies being sued for a number of things, such as misinformation, especially at the start of the pandemic,” said Michaelene Cody, policyholder attorney, executive liability practice, at Hub International. ltd. in Los Angeles.

One example was a lawsuit filed against Norwegian Cruise Lines, “which, as far as class action goes, was significant,” she said.

The securities class action lawsuit, filed March 12, 2020, alleged that the Miami-based cruise line made false and misleading statements — some of which were disclosed to the Miami Herald — to encourage the purchase of cruises, endangering customers and crew members. . The complaint also noted that the company’s stock price fell 26.7%.

As has also been the case with several other coronavirus-related class actions, the case was dismissed as the court ruled that the company’s statements were “corporate bloat”.

While a flood of D&O lawsuits were expected to result from the pandemic, “We were quite surprised,” said Christopher Vlasich, assistant vice president, financial lines and liability, claims North America, at Allianz Global Corporate & Specialty, a unit of Allianz SE, in Chicago. “We have seen fewer COVID securities class action lawsuits and fewer lawsuits overall than we would have expected.”

There were 291 securities class action lawsuits filed in 2019, “which was the highest we’ve ever had,” he said. After nine months of the pandemic, in 2020 only 219 were filed. “We expected it to be close to 2019, if not longer,” Vlasich said. “Last year, in 2021, a full COVID year, there were only 194 claims filed.”

The number of class action lawsuits was expected to be higher, in part because multiple bankruptcies and insolvencies were anticipated following the lockdowns that followed the COVID-19 outbreak in the United States in March 2020 and other economic consequences. “But we haven’t seen an explosion of bankruptcies,” Mr. Vlasich said. “Public companies have been much more resilient than I expected.”

Of the COVID-19-related securities class action lawsuits filed so far, “We don’t have many decisions yet,” Vlasich said. In the cases that have been decided, the companies have generally come out on top.

“Courts tend to rule in their favor, saying they cannot reasonably be expected to predict a global pandemic,” Vlasich said.

Going forward, however, things could change as staffing and supply chain issues heat up. Decreased retention of talent in the workplace “can lead to lawsuits and disputes between companies and between employers and employees. It can be large scale lawsuits,” Ms Cody said.

Even under the best of circumstances, “changing your supply chain processes and procedures would be difficult,” Vlasich said, “but adding personnel issues will make it even more complicated.”

The allegations vary in the D&O COVID-19-related litigation that has been filed, said Sarah Downey, chief executive of Lockton Cos. LLC in New York.

Companies can face allegations that they have misrepresented or failed to disclose the risks associated with COVID-19, have not adequately prepared for the pandemic, have made false claims about how this affected business operations and misrepresented how a “return to normal” might affect their business, she said.

Ultimately, what leads to D&O litigation or securities lawsuits against a company by shareholders is “every time the company misses its numbers,” said practice head Adrian Atilano. of executive responsibility at Hub California, a unit of Hub International.

Other pandemic-related issues, such as supply chain or staffing difficulties, could also lead to D&O-related litigation, which often hinges on a decline in stock price after an event, a- he declared.

A&D insurance pricing

While D&O insurance prices have risen significantly in 2020 and parts of 2021, that market is easing as more insurers enter it, Atilano said.

“It’s the basic economics – supply and demand,” he said, noting that as of November 2020, around 20 new markets have entered the sector. “Why are they here? Because they liked the prices and felt it was a good time to get started. The result is that increased competition has created a general flattening of D&O prices.

While some new companies have been created, most insurers entering the D&O market “are companies that have been around, offering products like workers’ compensation and property, and are now diving into D&O liability.” , did he declare.

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