D&O
In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for D&O.
Key developments in 2022
It seems that nobody could have predicted the "bumper pack" of socio-political and geo-political events that have unfolded in 2022; yet, as a society, we continue to become increasingly desensitised to the scale and gravity of these events and their effects on our day-to-day lives. In the D&O sphere, the past twelve months have brought about a mix of "much the same" in terms of claims. However, the aforementioned events of 2022 have brought to the forefront additional risk factors and concerns which are impacting carriers' choice of risk and the terms they are willing to offer their insureds.
COVID-19 related shareholder litigation has not abated, although it appears that the courts – particularly in the US are taking a robust approach; for example, in the Southern District of New York, the recent dismissal (with prejudice) of a shareholder claim brought against AstraZeneca in relation to alleged misrepresentations and omissions it had made in respect of its vaccine clinical trials. More generally speaking, the filing of US securities claims has decreased slightly, whilst the price of settlement of existing US securities claims had increased for the first half of 2022.
As expected, the number of company insolvencies continues to steadily rise in the UK, largely due to macro-economic factors such as Russia's invasion of Ukraine (and the consequent disruption in supply chains, increased operational costs and the general destabilisation of the global financial markets), the impending recession and the withdrawal of COVID-19 related governmental financial support. However, we still await the uptick in claims against insolvent company directors (see, also, the recent UK Supreme Court decision which confirmed that, whilst a director will owe a duty to the company's creditor, it is only once an insolvency is inevitable does that creditor's interest become paramount).
What to look out for in 2023
We expect that ESG issues shall continue to be ever-present in D&O litigation in 2023. As corporates and their directors are increasingly taking steps to attract investors with promises of being ESG responsible (with a specific focus on the "E"), there has been, and is likely to continue to be, an increase in securities-related actions being brought against these corporates with regard to the steps they take. It is the (seemingly) more "pro ESG" companies that are becoming the target of shareholder claims, with allegations pertaining to alleged "greenwashing" gaining increasing prominence. Carriers will want to reflect on the veracity of the ESG measures actually taken.
The "S" in ESG is getting more of a look in. Earlier this year, the FCA published rules which require UK listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management. The SEC published a similar requirement last year for NASDAQ listed companies. Investors will be looking more closely at the composition of the board; subject to how companies respond to the new requirement, disclosure related litigation could ensue.
In light of the geo-political crises of 2022 (and the subsequent economic downturn), we expect company insolvencies to increase and for directors and officers to face an increase in claims brought against them, particularly as litigation funding continues to be readily available.
Finally, we note the very recent SFO conviction of Glencore, pursuant to which Glencore was ordered to pay a fine of c.£281 million, the largest ever for the SFO. Whilst the anti-bribery investigations into the individual directors and officers at Glencore remains ongoing, this recent victory could result in an emboldened SFO, and a refocussed spotlight, both on the part of insureds and their insurers, on what corporates (and their directors) are doing to ensure compliance with anti-bribery and anti-money laundering regulations.