The most common reason businesses don’t purchase executive risk coverage—including D&O, EPL, fiduciary liability and crime—is because they believe their businesses are too small to need it. However, any privately held organization’s officers, board members, or employees can be sued over the decisions, errors, willful actions, or even statements they make.
Emerging and expanding threats are exposing small businesses to heighted executive liability, according to research from Coalition, putting business leaders increasingly in the crosshairs of legal action. This article discusses the changing executive risk landscape that’s being driven by digital transformation, pandemic-related legal issues, financial activities and employment practices liability (EPL) risks.
Decisions, errors and willful actions can leave executives vulnerable to legal action. A variety of parties—including customers, partners or co-owners, shareholders, employees, competitors, creditors and government agencies—can bring forth lawsuits against any privately held organization.
In fact, 1 in 3 small businesses carrying directors and officers (D&O) coverage have experienced a claim in the last two years, while 1 in 5 faced an EPL claim. Over a quarter (28%) faced some kind of litigation over the last 24 months. The research also revealed that the average D&O case for businesses with up to 250 employees costs over $120,000, making the potential impact catastrophic for small businesses. In addition, the average EPL loss is $68,867.
As technology advances, so does the evolution of corporate and executive risks. Cyberattacks have become faster, more frequent and more severe in recent years, threatening companies’ data and reputations. These rising trends were worsened by the COVID-19 pandemic, which forced businesses to digitally transform in order to survive.
However, many companies were unprepared for the complex and unfamiliar risks of the digital landscape.
The following are ways in which digital unfamiliarity can expose executives to new liabilities:
According to Coalition, 57% of surveyed businesses were negatively impacted by the pandemic. Business leaders were forced to make quick decisions regarding remote work, online ordering, hours of operations, and health and safety precautions. The pandemic made executives more vulnerable to legal risks in several ways, including:
Financial-activity litigation is typically covered under a D&O policy, and uninsured companies can suffer catastrophic losses. The following financing activities can leave D&Os susceptible to exposure and risk:
EPL risks can be related to both employment matters and a company’s environmental, social and governance practices. According to Coalition, 26% of companies with 100 or more employees experienced an EPL claim in the last two years. EPL-related litigation can result from issues regarding:
The most common reason businesses don’t purchase executive risk coverage—including D&O, EPL, fiduciary liability and crime—is because they believe their businesses are too small to need it. However, any privately held organization’s officers, board members or employees can be sued over the decisions, errors, willful actions or even statements they make. For more executive risk coverage information, contact us today.
