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D&O challenges significant for private companies, experts say

Posted On: Feb. 16, 2023 4:54 PM CST


NEW YORK — The economy is continuing to present some significant, still unresolved, challenges for private company directors and officers, including the ongoing threat of bankruptcy, experts say.

At one time or another, private companies have had to cope with issues including inflation, labor shortages, higher interest rates and the supply chain, said Sandra Lagana, Hartford-based private D&O product manager for Travelers Cos. Inc. Each of these is relevant, “and a lot of uncertainty continues to exist in the economy, and this makes it especially challenging for private businesses,” she said.

Ms. Lagana was among speakers at a session on how private companies are adapting to economic conditions during a session at the Professional Liability Underwriting Society’s D&O symposium on Wednesday. Speakers observed that private-company D&O policyholders range from small mom-and-pop businesses to unicorns, private companies that are valued at more than $1 billion.

There are a number of approaches companies can take to address these issues, including downsizing, by closing operations or through layoffs, delaying or shying away from other avenues of growth, “and, unfortunately, you may find that some companies will look to cut corners, by not updating or perhaps not following all of their policies and procedures,” Ms. Lagana said.

“Certainly, some organizations will be more likely to default on loan payments and still others may be in a position where they end up having to file for bankruptcy,” she said.

Often these responses are along industry lines, Ms. Lagana said. While certain businesses, such as restaurants, have shut their doors, others have restructured their supply chains, by in some cases moving their manufacturing facilities closer to home, or adding or changing suppliers, she said. Others turned to technology and innovation to address economic threats, she said, warning that if these moves are not well executed, they could give rise to claim activity.

While the paycheck protection program has been very successful, at least temporarily, in keeping businesses open, and some organizations have shut their doors without needing to file for bankruptcy, “we’re not quite out of the woods yet, when it comes to bankruptcy filings,” she said.

Many clients have been able to “embrace some of the trouble of the pandemic” and have turned into “pretty sophisticated” companies, said Cathy Padalino, Washington-based senior vice president with Aon PLC.

However, there have been “tremendous” restrictions to capital that have not been seen in a decade, said Gregg Glick, San Francisco-based senior vice president, private/health care division, with Allied World Insurance Co., pointing in particular to overleveraged companies in the software and health care sectors.

“Unfortunately, I do fear it’s a long road ahead with a lot more bankruptcies, shutdowns, layoffs and a contraction of capital,” he said.

Discussing claims trends, session moderator Ivan J. Dolowich, co-managing partner with Kaufman Dolowich & Voluck LLP in Woodbury, New York, said while COVID-related claims have not materialized as expected, the market is now seeing claims around return-to-work, discrimination issues. There has also been a pickup in regulatory claims, as well as under the Illinois Biometric Information Privacy Act and the Telephone Consumer Protection Act, he said.