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Could my employees sue me for mismanagement claims relating to Coronavirus?
As the situation evolves, the Coronavirus pandemic presents unique challenges to business owners. With government guidelines constantly changing in a bid to beat the virus, business owners are having to make critical decisions affecting operations and staff in short periods of time.
As a company director or manager, responsibilities are placed upon individuals to act with care, in good faith, within the law and in the best interests of the company and its employees.
Should someone allege that a business has not met any of these responsibilities, then a claim may arise against an individual personally. Even careful and conscientious directors can fall foul of the law and sometimes directors can face personal liability for legal issues, even if caused by someone else’s mistake.
When lockdown was enforced, many policyholders found that no cover was being provided for business interruption due to Coronavirus and with more scrutiny than ever, directors and management teams are rightly asking if they are personally covered for the decisions that they make on behalf of the business.
Liability and legal expenses policies are likely to provide some cover, but this will be limited and not provide any protection for individuals within the organisation should they be deemed personally responsible and targeted.
Directors and Officers Insurance provide cover for key individuals within a business to protect them from claims which may arise from the decisions and actions they take as a part of their role in the business. Also known as Management Liability, the coverage includes financial protection for directors and key figures within the business against the consequences of actual or alleged ‘wrongful acts’. An important extension to this policy which is often overlooked is Employers Practices Liability, which covers disputes specifically relating to employment such as unfair dismissal, harassment and failure to follow procedures such as redundancy.
The policy provides cover for the personal liability of directors and often covers the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its directors and officers.
Most insurer’s definition of a “Wrongful Act” includes any breach of duty or negligent act, error or omission. For employment related issues this would include the “failure to adopt adequate workplace or employment policies and procedures”, which could lead to COVID-19 related issues being included under this cover.
Given the high number of confirmed cases nationwide, it may be difficult to prove where contracting the virus occurred. However if an employer was going against government advice, breaching health and safety guidance or enforcing what would be considered as unreasonable working practices it is possible that an employee, stakeholder, client or member of the public could file a grievance.
It’s also worth considering that with the added financial and operational pressures placed on businesses, legal action might also be considered if a business were taking payment for services that it was reasonable to expect would not be carried out in current market conditions. A number of businesses have recently gone into administration or voluntary arrangements with tough questions likely to be asked in the future.
For both of these examples, a third party or employee would have to show negligence in the individual’s actions that leads to a detriment suffered, but regardless of whether there is any truth to an allegation, the time and costs involved in defending any legal action could be substantial.
As the UK begins to emerge from lockdown, businesses will focus on how to operate in the ‘new normal’, whilst balancing new health and safety measures, employee safeguarding, profitability and ultimately survival.
Insurers have seen more interest in Directors and Officers as business owners scramble to arrange appropriate cover, however it appears that this may be too late, with many insurers applying clauses relating to Coronavirus or adding additional questions to proposals form relating to risk management.
The UK insurance industry was already experiencing difficulties prior to Coronavirus pandemic due to large losses, reductions in capacity and changes to capital adequacy, so it is no surprise that insurers would be cautious in writing new policies, with some insurers reviewing their current books.
Now more than ever is the time to proactively review your insurance arrangements – liability as well as investing in other products such as Directors and Officers Insurance.
In these uncertain times, insurance should be used as a shield to help a business protect itself from the risks associated with Coronavirus. Discuss needs with your broker and avoid arranging cover as a last minute afterthought online like trying to apply a band aid for a bullet wound.
Be safe in the knowledge that your business is protected.
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Clarke Williams Ltd are authorised and regulated by the Financial Conduct Authority under reference 758683. The Financial Conduct Authority’s Register can be accessed through http://www.fca.org.uk/ . We are registered in England and Wales with Companies House under number 10317065. Our registered office address is 194 High Street, Tonbridge, Kent, TN9 1BE