Canadian Underwriter

Will more Canadian insurers introduce COVID-inspired D&O exclusions?

April 21, 2020   by Jason Contant

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The Canadian insurance industry will struggle with adding exclusions related to COVID-19 in directors and officers (D&O) policies, “particularly in light of the fear that adding them now will suggest past policies did not exclude these issues,” a Toronto lawyer said last week.

“We do expect, however, that more insurers will be compelled to introduce such exclusions, as their reinsurers will definitely not wish to assume liability for the COVID risk,” says Mark Frederick, an insurance defence lawyer and partner at Miller Thomson LLP in Toronto. He wrote about the topic in the law firm’s daily Canadian COVID-19 update.

“Unlike the U.S.,” Frederick wrote, “we do not expect that Canadian regulators will instruct or mandate coverage offerings for Canadian regulated insurers (including Lloyd’s).”

Frederick was responding a question about the response of insurers regarding COVID-19 on D&O policies. He said the law firm was asked to consider three questions:

  1. What will be the major source of D&O claims in Canada arising from COVID?
  2. What will be the response of insurers?
  3. Specific matters to be drawn to the attention of D&O underwriters about Canada

At the moment, Canada has seen no D&O claims arising out of COVID, Frederick pointed out. The standard D&O policy does not consider “contagion” exclusions and tends to focus more on what types of coverages can be made available. Broad form cover usually includes some employment termination cost relief that could be triggered.

“We think that Canadian insurers will take a ‘wait-and-see’ attitude towards COVID-inspired D&O claims, preferring to respond to the primary exposures alleged against them for business interruption risks,” Frederick wrote.

Generally speaking, Frederick said he expects some commonality of potential legal actions against directors and officers in the following categories:

  • Interference with contractual relations (such as breaking a supply chain or preferring certain customers over others)
  • Failure of business continuity plans
  • Failure to obtain appropriate insurance, particularly for companies that organize things like events.

As well, Canadian directors and officers face other liability pursuant to statutory laws and regulations that may be triggered due to the effects of COVID; these relate to employee and workplace liability, income tax liability, environmental liability, business practices, and class action lawsuits, for example.

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