ESG – what directors and officers need to know about insurance

July 29, 2022 – As Environmental, Social, and Governance (ESG) issues become increasingly important to corporate investors and other stakeholders, ESG risks have also attracted the attention of plaintiffs’ lawyers. Directors and officers may find themselves defending their shareholders from lawsuits, lawsuits, and other ESG-related claims.

Prior to this, they may be well educated to understand how their corporate and officers liability (D&O) insurance can protect their assets and assess whether the company’s D&O insurance policy includes appropriate measures to address ESG risks.

Basics of D&O insurance

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When considering how D&O insurance can address ESG claims, it is important for directors and officers to understand the types of insurance that D&O policies can provide. D&O insurance programs provide (subject to terms and conditions) direct protection of directors and officers’ property (Coverage A part A), cover the company’s cost of indemnifying directors and officers (Part B), and indemnification for other causes against the company. itself (Part C).

D&O policies may contain descriptions of different categories of costs, such as outgoing investigative costs and the cost of responding to government investigations. Most companies have “Side ABC” basic and comprehensive “Side ABC” insurance, as well as “Side A-only” insurance, which provides additional and comprehensive coverage for directors and officers.

Why is D&O insurance important to ESG?

Generally, D&O insurance provides coverage against claims of “wrongdoing” by a company’s directors or officers. The definition of the word “mistake” includes, in the applicable section, “any error, mistake, misleading statement, act, failure, omission, or breach of duty performed, attempted, or attempted or attempted.” Given the broad definition of “wrongdoing”, it is clear that D&O insurance would be relevant in the event of an ESG shareholder lawsuit.

Punctuality plays an important role. D&O coverage is provided on a “predictive” basis. This means that a D&O policy will cover the first reported claim within the policy period – and possibly within the “additional reporting” or “notice period” – regardless of when the conduct or injury occurred.

There are at least two requirements:

•First, a warning: Directors and officers should be aware that a “complaint” cannot be limited to lawsuits. Instead, “complaint” is defined as “a written demand for money or non-money” (emphasis added). An ESG issue can become a “claim” for insurance purposes – which can trigger a duty to provide timely information to D&O insurers – before it reaches court.

• Second, opportunities: Since D&O insurance is based on the time of “claims” and not on behavior or harm, directors and officers who are considering ESG types that may be challenged in the future may have the opportunity to investigate the appropriateness. additions to the company’s D&O policies based on the company’s risk profile.

Indeed, unlike other types of insurance, D&O policies do not have widely used, standardized forms. Differences in language in laws (which often contain a lot of legalese) and insurance policies can lead to pitfalls for the unwary. But this diversity can also lead the agent to shop around or negotiate to find out what fits his potential, including ESG-related risks.

Apart from that

Managers and officers need to be aware of the policy exclusions that insurers can rely on to resist the submission of ESG complaints and find opportunities to negotiate for a fair hearing. Although insurers may state that certain exclusions apply to claims, the following exclusions are often involved in ESG claims.

Physical damage/property damage

D&O policies often include exclusions that apply to bodily injury and property damage. Insurers may strongly argue that ESG claims with a distant relationship to bodily injury or property damage are excluded. Conservatives often have a strong argument that the repeal didn’t need to be so sweeping to achieve privacy or output (which can be broadly defined).

In reviewing the wording of the exclusion, policymakers may note that it is better for these exclusions to be referred to as exclusions “for” bodily injury or property damage, rather than “exclusions.” The word “for” supports a more reasonable, narrower definition of dismissal as failure to comply with alleged misconduct by directors or officers (e.g., governance issues).


D&O policies may contain so-called “acts” that exclude coverage of the alleged act, i.e., “willful fraud, willful misconduct, or willful violation of any law of the United States…-authorized judgment in the course of the act or proceeding.”

Although an insurance broker may try to rely on such an exclusion to avoid concealing ESG’s claim, it is important to note: (1) the word “willful” places a heavy burden on the insured to show something beyond “mere” fraud or criminal conduct, and (2) the exclusion is only applicable when as a final, inadmissible judgment of willful conduct.

While ESG claims are unlikely to lead to such “actions”, directors and officers should be aware of the risks that come from being determined to commit intentional wrongdoing. Further, if their current D&O policies do not prevent “conduct” from being “intentionally” excluded as defined in the default judgment, policyholders should consider requesting amended wording.


Most D&O policies include exclusions related to pollution. Another pollution exception means that it applies to all purposes resulting from “pollution,” broadly defined. Some pollution residuals are less documented and allow for more pollution-related defense claims, such as civil liability lawsuits related to pollution-related liability. Even so, the absence of pollution may affect the environment’s role in some ESG goals.

While there may be strong arguments against applying non-pollution to many ESG issues (for example, that today’s climate change lawsuits do not necessarily mean the removal of traditional “pollution”, policymakers can benefit from reducing the amount of non-pollution at the time of writing, focusing more specifically. on the search for safety related safety equipment.


In some cases, insurers respond to ESG claims in an attempt to cancel D&O insurance, or avoid coverage, based on false claims made in the underwriting. This can create a particular problem where ESG claims rely on false or misleading claims – made in financial statements, public filings, and press releases – as the basis for ESG shareholder claims. An insurer served with such a claim may argue that the same documents (which are often part of the D&O policy document) that purport to support the ESG shareholder’s claim also create a defense based on misrepresentation of use. .

In addition, some D&O insurers are inviting policyholders to participate in ESG documents, requesting a variety of information about the company’s ESG-related activities and potential sources. If the information provided to insurers about ESG is not true, insurers may avoid coverage based on alleged inaccuracies.

Although these risks should be recognized, it should also be remembered that policyholders may have legitimate reasons to push back against wrongdoing or to limit protection, and the terms of the policy and the rules of the relevant authorities may place significant burdens on insurers who guarantee such protection.

Perhaps the best way to protect yourself from false claims is to ensure that the company’s material does not include false or misleading statements, including about ESG. Further, policyholders may seek to have a “fixed judgment” entered into their D&O policy. Such arrangements state that the information or intentions of one insured will not be disclosed to others. Therefore, even in some cases where an insurer can meet the burden of proving that the insured was intentionally misled at the time of underwriting, relief may be available to directors and other officers.

Separating thoughts

D&O insurance can provide valuable support to directors and officers facing ESG claims that threaten their financial position. D&O insurance policies can vary in coverage and language used. Business policy holders, including directors and officers, who are concerned about ESG-related risks, should strive to increase their D&O control during the writing process, including reducing the number of policy exclusions.

In addition, to avoid insurance disputes based on misrepresentations in writing, policyholders must ensure that their underlying documents (for example, financial statements, public records, and publications) are free of false or misleading information, which should be doubly beneficial. helping to defend against ESG claims being made in the first place.

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