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Directors and officers face heightened pressures in #MeToo era

Directors and officers face heightened pressures in #MeToo era

NEW YORK — The swirl of current events and rapid ascension of the “#MeToo” movement to end gender discrimination and assault are exerting pressure on the directors and officers liability space, according to a panel of industry lawyers.

Just a day before Harvey Weinstein surrendered himself to New York’s First Precinct, attorneys and others working in the field gathered to discuss trends and changes at the New York City Bar Association’s Insurers’ and Insureds’ Perspectives on Current Issues in D&O Liability & Insurance 2018 program in New York on Thursday.

“I think the complexities of this now for boards and for their brokers, is when is a couple of incidents a pattern sufficient that you have some concern of a D&O exposure?” said Peter J. Biging, a partner with Goldberg Segalla L.L.P. in New York. “Or when is an incident so significant with a CEO with a public persona that you have a concern there as well?”

A number of recent cases, including the one involving Steve Wynn, chairman and CEO of Wynn Resorts Ltd., “have really brought this to the forefront. It’s amazing how just very recently” such cases “have opened up a door to these types of claims,” Mr. Biging said.

“The employment liability claim itself, and the underlying harassment claims, on their face, you don’t really think, oh, D&O exposure,” said Ari R. Magedoff, New York-based assistant vice president of D&O and financial institutions claims for Axis Insurance, part of Axis Capital Holdings Ltd.

“But we’re in such a dynamic and changing world,” Mr. Magedoff continued. “Information is available on the internet, you have Twitter, you have Facebook, you have all these different things which are impacting the way information is disseminated and I think its impacting the D&O exposure.”

The flow of information, who has it and when, can become critical in the assignment of liability, the panel said. If a chief executive is involved with some sort of settlement or sabbatical related to behavior, how this information is treated matters.

“That’s critical information that shareholders should know,” Mr. Magedoff said. “A lot of people invest based on who a CEO is and how they’re running their company.”

Derivative actions, in which shareholders file suit to recover damages for the company and not for themselves, may see a rise in interest, the panel said.

“I think the hotbed of activity for the #MeToo claims, as they impact D&O, is going to be in the derivative area,” said John Minett, technical director and counsel at Travelers Cos. Inc. in New York. “You can still have damage to the company” without the drop in stock price sometimes associated with such claims, he said.

Recovering damages for the company in such a case is what “a derivative lawsuit enables shareholders to do,” Mr. Minett said.

Courts may also be subject to the same pressures as the D&O space, the panel said.

“I think it’s going to be interesting to see how these play through the motion to dismiss phase,” said Mr. Magedoff. “It’s a tough issue for the courts, I imagine, because #MeToo is such a hot topic. Do you really want to be the judge who dismisses the #MeToo securities class action?”



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