Notwithstanding the rapid spread of COVID-19 having hit the global real estate investment market in the short-term, the long-term effects are now being felt, with usual undertakings such as travel and face-to-face meetings still being restricted. Sectors such as the retail, hospitality and travel industries are amongst those who are still feeling some of the toughest effects.
For many companies in the real estate space, and the individuals that lead them, there will be significant pressure from tenants who are struggling with lockdown. Questions will be asked of businesses not allowing some form of flexibility, and balancing shareholder profit expectations with any negative press is fraught with complications. The high street was already struggling in the face of on-line competition pre-COVID-19, and wholesale job losses can trigger social outrage.
The impact is no longer restricted to those who find themselves out of work, especially as furlough schemes come to an end. Twitter and other social media platforms will force regulators to sharpen their teeth and hold businesses to account. Preparing for investigations and appearances before parliamentary commissions are costly, but can all be funded by Directors’ and Officers’ (D&O) insurance, not to mention the defence of allegations of wrongdoing that can follow.
It is not just employees that will suffer, from customers and suppliers to creditors and shareholders, all stakeholders face an uncertain future. Many companies in the real estate space will be fearing bankruptcy, as worldwide lockdowns have sent many countries heading into an economic downturn. Companies are naturally concerned about what it will mean for their operating results and what level of government support is forthcoming, which can all lead to claims.
As the pandemic transitions out of a public health crisis, lockdowns will slowly lift, and we will start to notice the full economic impact for the high street and beyond - how businesses continue to respond to the effects of COVID-19 is yet to be tried and tested. With no obvious quick solution available, effective communication with all stakeholders could lead to litigation.
Unsurprisingly, the real estate sector has become incredibly challenging when designing D&O insurance programmes, with exclusions being applied along with specific requests for COVID-19 underwriting information. It is important to design an insurance programme that offers the correct level of cover, one that offers balance sheet protection but also enough of the vital “Side-A” cover which will be needed should the company itself face insolvency.
The value of Side A coverage
Traditionally, D&O coverage has three insuring clauses known as Sides A, B and C.
Side A cover can be crucial as it focuses on protecting the people insured under the policy, not the company itself – insurers pay the Director’s legal costs incurred defending a claim, offering essential protection for individuals’ personal assets that would otherwise be at risk in the event of litigation.
Side B reimburses the company when they have stepped in to pay costs on behalf of their senior people.
Side C is designed to protect the company itself, from exposures such as Shareholder Class Actions (for publicly listed firms), Health & Safety Investigation Costs and Corporate Manslaughter Claims.
All D&O policies will provide Side A protection, but most commonly as part of an overall shared limit with side B & C claims, whereby all insured parties ‘share’ the coverage. In the current climate, it is therefore more important to consider dedicated Side A cover that can not only help act as a safeguard, but also to ensure that the limit cannot be exhausted by claims against the company itself (leaving some individual directors and officers, and their personal assets, exposed).
Gallagher can offer D&O insurance in their capacity as such, as well as for the companies themselves. D&O insurance is available for public, private and not-for-profit organisations.
We remain open for business and are fully operational, and we appreciate just how uncertain times have become for all of our clients, especially on an individual basis. If you are concerned about the level of your D&O cover, or would like to know more about protecting your personal assets – please do not hesitate to contact us.