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Companies are advised to review D&O, other policies for ESG risks



Companies should review their liability policies for directors and other officers to better understand how to protect them from a growing range of claims arising from environmental, social and governance risks, a panel of experts said on Wednesday.

Increased SEC actions against investment advisers, on whistleblower tips and on corporate disclosures reflect the increased attention being paid to ESG exposures by the government, said William Passannante, a shareholder at Anderson Kill PC in New York.

Shareholder derivative actions against boards of directors over diversity, equity and inclusion policies, company-versus-company class actions on ESG-related issues that allegedly lead to stock declines, and kickbacks that limit ESG activities are other potential liability areas where D&O issues may arise. Said Passanante.

ESG consists of an umbrella term of three exposure classes, but not everyone agrees on exactly what those definitions are, said Stacy Parker, managing director and an attorney in the legal claims group within the financial services, commercial risk solutions group at Aon PLC. “These definitions can change,”

; Parker said.

In the changing regulatory, legislative and legal landscape, business leaders may feel that “they’re damned if they do and damned if they don’t” when it comes to ESG, she said.

“As risk managers, boards, companies and their advisors try to navigate a ship in choppy waters back to clear waters, the process of if and how and when boards and companies identify, disclose, explain, timely measure and mitigate ESG risks is important. to The D&O market,” she said.

Clients are asking questions in a D&O insurance recovery context about what to do with these increasing risks, said Diana Shafter Gliedman, shareholder at Anderson Kill.

“It is important to consider ESG when obtaining insurance coverage, to consistently review your insurance program, both the D&O policies and the other policies that may act in parallel, to ensure that you have the most up-to-date policies and that you are aware of the various the exceptions and the recommendations,” Shafter Gliedman said.

Different coverages can intersect in an ESG-related claim, said R. Damian Brew, managing director and national practice leader, claims FINPRO at Marsh LLC. “You can have a situation where your crime and your cyber policy and your D&O policy interact,” Mr. Brew.

That could raise questions about how the Side A coverage designed just for directors and officers might intersect with other policies, he said. “When it comes to D&O policies, we want to make sure everyone is covered. Thinking about who will be covered if you have a non-compensable claim can be very important,” he says.

Intuitively, one might think that companies and board members and officers who have lagged behind on ESG initiatives would be a bad D&O insurance risk, “but that’s not really the case,” said Raymond A. Mascia Jr., a shareholder at Anderson Kill.

“In fact, companies that are proactive on ESG face potential liability,” said Mr. Massia. For example, when a company announces that it has significant sustainability work and it turns out that was a misrepresentation, or not entirely true, he said.

“Have policyholders in the insurance industry appreciated that aspect of this yet?” he said.

Panelists spoke during Anderson Kill’s annual D&O seminar, which focused on D&O issues within ESG.


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