[co-author: Andrew Solyntjes, Markel Bermuda Limited]
The effects of the COVID-19 pandemic on businesses in all sectors have been profound to say the least. One need only look at recent reports showing an over 30% drop in U.S. GDP between Q1 and Q2 to get a sense of the economic impact of our times on large businesses. While some sectors have fared well, many others have not. As the economy weathers these times, it is safe to predict that large bankruptcy filings will continue through at least the remainder of 2020.
As bankruptcy risk increases, the overall size and structure of a company’s directors and officers (D&O) insurance program becomes crucial. Companies of all sizes purchase D&O insurance to protect their corporate directors and officers, and insure against risks which may threaten the viability of the company itself. In a potential bankruptcy scenario, the availability of “Side-A” coverage under a D&O policy becomes vitally important, as Side-A limits are triggered when a company cannot indemnify its directors and officers due to, among other things, insolvency.
D&O bankruptcy claims pose unique risks and challenges to D&O professionals for several reasons, not the least of which is that the interplay between bankruptcy law and procedure, on the one hand, and D&O coverage obligations, on the other, can become confusing. Here are some of the top tips and reminders we think about when we are dealing with bankruptcy filings by insureds:
The intersection of D&O insurance and bankruptcy law is nuanced but relatively predictable; the same issues tend to come up again and again. Keeping these notes and practice tips in mind as bankruptcy claims start rolling in should keep D&O professionals ahead of the curve.