Identifying and Mitigating Today's Top Executive & Professional Risks
APRIL 4, 2023
More employers are focusing on social awareness, or the ability to consider the perspectives of others, especially those from diverse backgrounds and cultures. As this continues to surge and subsequent changes occur in employment law, directors and officers (D&O) liability and employment practices liability (EPL) create heightened risk for companies and their leaders.
Claims challenging the diversity and inclusion efforts at a company’s highest levels, proper execution of fiduciary duties, employment-related decisions, and other similar issues should all remain top of mind for organizations seeking to purchase or renew D&O and EPL insurance policies. By better understanding these risks, companies can work proactively with their insurance advisors to mitigate their exposures and reduce the potential for damage and loss. Here’s a closer look at the top executive and professional risks currently facing many U.S. businesses, along with some practical solutions that can help companies protect their interests.
Directors and Officers (D&O) Liability
Environmental, Social, & Governance Risks
There is rarely a time of complete calm in D&O liability and EPL. Risks consistently present themselves and evolve. Such is the case with environmental, social, and governance (ESG) risks. Most business leaders agree that ESG’s true meaning and risk-management implications are elusive. Essentially, as a director or officer of an organization, it’s not easy to answer the broad question: “How are you governing your company’s impact on the planet and on people?”
For example, just the “social” part of ESG could refer to a host of issues, including diversity, equity, and inclusion (DEI); workplace safety; work-life balance; data privacy/cyber security; and child labor/human rights issues. D&Os will continue to face uncertain management liability risk regarding ESG practices and proper disclosure, particularly without any truly reliable measure of ESG-related performance. Despite this uncertainty, D&Os must take action to protect themselves and their organizations. This includes reviewing the level of protection contained in the company’s D&O liability policies.
When general economic uncertainty meets a financial industry crisis, eyebrows rise quickly for customers, shareholders, employees, and regulators — all of whom can bring claims against D&Os for breaches of fiduciary duties and fraud. The stunning collapses of both Silicon Valley Bank (SVB) and Signature Bank (SB) put insurance companies on high alert, particularly regarding D&O liability risk.
Other financial institutions and commercial organizations that have been financially impacted need to be prepared to answer questions from their D&O underwriters about potential exposures to this banking crisis, and make sure their D&O coverage terms consider the more extreme risks of financial insolvency or bankruptcy. In contrast, those organizations not impacted or only tangentially involved must be able to differentiate their risk profiles in a positive way to maintain broad coverage at competitive pricing.
Employment Practices Liability (EPL)
Employment law updates in the areas of abortion rights, sexual offense survivor rights, and pay transparency shine light on very serious and sensitive issues, which can lead to an increase in employment-related litigation. Employers should manage employment-related risk using the mitigation strategies and robust EPL insurance available through USI. The following are some current examples of recent government regulations impacting employers.
Supreme Court Ruling: Dobbs v. Jackson Women’s Health Organization
The U.S. Supreme Court effectively reversed the landmark Roe v. Wade decision when it handed down its ruling in Dobbs v. Jackson Women’s Health Organization in June 2022. The right to decide whether to permit abortions now falls to the states, and many states have already enacted laws prohibiting or restricting abortion. In some states, these new laws also include civil and/or criminal liability. The implications of this decision for employers continue to evolve, increasing the risk of alleged employment-related missteps by employers.
New York Adult Survivors Act
In May 2022, New York Gov. Kathy Hochul signed into law the Adult Survivors Act (ASA), which went into effect on November 24, 2022. The law provides a one-year window for individuals to file certain sexual offense claims that were previously limited by a window of time. Individuals can bring these claims, regardless of when the alleged act occurred.
The ASA will allow victims of a sexual offense that occurred when they were 18 years of age or older — but which is currently time-barred — to file a claim before November 24, 2023. The one-year window only applies to otherwise time-barred claims based on a sexual offense within the purview of the New York penal law, regardless of when they occurred. This window may bring an increase in liability exposure to employers for past sexual misconduct claims.
California Pay Transparency Law
In September 2022, California Gov. Gavin Newsom signed a bill mandating new pay data disclosure and reporting requirements for employers in the state with 15 or more employees. The law became effective January 1, 2023, and requires employers to:
Disclose pay ranges in any job postings.
Provide pay scale information (i.e., the salary or hourly wage the employer reasonably expects) upon request from a current employee or an applicant for employment.
Employers will also need to maintain a record of each employee’s job title and wage history during employment and for three years thereafter. Violations of the pay scale disclosure requirements could result in a fine of between $100 and $1,000 per violation.
How USI Can Help
Organizations may not always have the time, resources or expertise to evaluate their executive risks and take needed actions. Leveraging the knowledge of an experienced broker can help navigate these new D&O and EPL challenges and avoid costly mistakes for employers. Clients that engage USI’s Executive and Professional Risk Solutions (EPS) specialty team will receive expert counsel on emerging risks before coverage is placed, and USI will strongly advocate for the client at the time a claim is made. Broking and claims experts within USI can:
Proactively help clients answer or address any underwriting questions during the placement of the coverage process.
Recommend policy structures (limits/retentions/terms) to address evolving risks.
Review relevant insurance policies to help identify coverage gaps (intended or unintended).
Help organizations and their leaders understand how to best mitigate emerging risks, transfer insurance risks and navigate the complex process of defending claims.
To learn more about USI’s Executive and Professional Risk Management Services and how we can help your organization manage your exposure, please contact your USI representative or email firstname.lastname@example.org.