London - Insurers are increasingly worried about shareholders, employees or customers bringing coronavirus-related claims against company executives and are considering excluding the virus from policies which protect the bosses, industry sources say. Two cases have been filed in the United States in recent weeks accusing companies of making misleading statements about the coronavirus or their coronavirus plans in order to sell products and boost their share price, while cruise operators, for example, are bracing for claims from passengers stuck on ships hit by the virus. More such cases may follow in the U.S. and other parts of the world where class action suits can be filed, such as Britain, continental Europe, Australia and Canada, the sources said. "An uptick in litigation targeting directors and officers across industry sectors is one likely, and unwelcome, consequence" of the coronavirus pandemic, said James Whitaker, partner at law firm Mayer Brown. Companies who face legal action use directors & officers (D&O) insurance to pay their executives' defence costs and any penalties awarded by the courts. The global market for D&O insurance in London, the U.S. and Bermuda, provides for around $600-700 million in cover, said Christine Williams, Chief Operating Officer for broker Aon's Financial Services Group. But recent years have proved challenging as legal cases and awards mounted, pushing up premiums and reducing the amount of cover offered, and the coronavirus outbreak would likely exacerbate this, she said. While many classes of insurance, such as business interruption and event cancellation, exclude epidemics, D&O insurance usually provides cover and brokers said this could be a rare avenue for companies to recoup costs triggered by the pandemic.
A shareholder of Inovio Pharmaceuticals filed a class action complaint on March 16 against the company and its chief executive, citing "misstatements" that the company had developed a coronavirus vaccine in three hours. An Inovio spokesman told Reuters that the firm developed a vaccine construct for its coronavirus vaccine within three hours from the viral sequence being publicly available, manufactured the vaccine and was in preclinical trials in January. Meanwhile, a securities fraud class action was filed against Norwegian Cruise Line Holdings, its chief executive and chief financial officer on March 18, claiming the company made misleading statements about the virus to encourage customers to book cruises. Norwegian Cruise Line Holdings did not respond to request for comment. Carnival Corp also said this week that it had received, and expected to continue to receive, lawsuits from passengers aboard the coronavirus-stricken Princess cruises and additional lawsuits stemming from COVID-19. "The pressure on insurers will be significant, while the legal costs...will also be huge," said AFL Insurance Brokers Chairman Toby Esser. That pressure means insurers are seeking to avoid covering such claims in future. "We are starting to see insurers looking at the potential for specific COVID-19 exclusions going forward," said Beth Thurston, head of management liability, UK & Ireland, for broker Marsh. Ian Roberts, managing partner of law firm Clyde & Co Clasis Singapore, said D&O policies could exclude claims arising from bodily injury or illness, and insurers may be considering this. Lloyd's and other London commercial insurers account for the bulk of D&O business, brokers say. "D&O insurers in London are trying to have a very broad exclusion of anything related to coronavirus," a fourth broker said. However, the International Underwriting Association, the trade body for London commercial insurers outside Lloyd's, said feedback from its members showed few were applying exclusions so far. "This is a developing situation and things may change in the future, but currently the market appears to be evaluating exposures by asking more questions rather than simply excluding," an IUA spokesman said by email. The Lloyd's Market Association declined to comment.