COVID-19 – EXPOSURES TO DIRECTORS AND OFFICERS

Thursday 10 December 2020

There has been much media coverage on the effects of the pandemic on companies, and the resulting business judgements of respective directors and officers that could lead to civil, criminal and regulatory exposures for those concerned.

Wrongful acts

Public bodies have faced their own challenges as a result of COVID-19. This may lead to directors and managers facing time consuming allegations of ‘wrongful acts’ committed by them in their capacities as directors when dealing with local responses to the virus.

This issue is particularly pertinent given more stringent social distancing rules as we enter into a second six months of living with COVID-19, with inevitable further local lockdowns over the winter.

The risk of any successful claim against a director or officer of a council is likely to be minimal, given the rigorous requirements of the Health Protection (Coronavirus, Restrictions) (England) (No.2) Regulations 2020. The primary issue for councils is the time and legal costs in defending such claims, as well as the reputational impact from media attention.

Costs are likely to be significant for any claim that a director or manager of a council will encounter. Having a directors and officers policy providing costs’ protection is invaluable.

The Regulations provide councils with the power to:

  • Issue directions to restrict access to, or close, individual premises - Regulation 4.
  • Prohibit certain events, or type of events, from taking place - Regulation 5.
  • Restrict access to, or close, public outdoor places, or types of outdoor public places - Regulation 6.

These directions can only be exercised if certain strict conditions are met. These criteria are essentially whether the direction proportionately responds to, or is necessary to, prevent or control a serious and imminent threat to public health in the council’s area or the spread of infection in that area.

Any criticism of any director or manager executing the Regulations is likely to be very fact specific, according to the individual locality and response concerned.

Given the latest Government announcements, it is highly likely councils will seek to exercise their powers under the Regulations to prevent localised infection and/or control any spread already detected within their area.

Claims

It is difficult to imagine a scenario where a council would be found to have not met the conditions required to impose restrictions under the Regulations. However, it is possible that an array of claims, regardless of merit, may be brought by disgruntled third parties seeking to blame the relevant individuals responsible for exercising the council’s regulatory powers.

This could be manifested in various ways. An obvious example being a business or individual claiming that a director is responsible for a loss of earnings if it is alleged that an incorrect direction has led to their business closing.

Equally, there may be individuals who claim that as a result of the alleged questionable imposition of the restrictions by a council, their mental health has suffered, whether as a pre-existing condition or not.

The Office of National Statistics reports that two thirds of the UK population expressed concern that their mental wellbeing has been affected as a result of COVID-19 and its impacts.

It is not inconceivable, that an individual could claim scenarios brought about by regulatory restrictions on accessing a public park, golf course, tennis court or even locally managed fishing waters, closed by a council, which has caused their stress or anxiety to occur or worsen.

Alternatively, claims may emanate where a director or manager is blamed for the alleged failure of a council to act pursuant to its powers under the Regulations. For example, an individual may claim a council had full knowledge of an area or premises with a high disease prevalence or transmission rate, and the director or manager of that council failed to exercise powers appropriately resulting (allegedly) in the individual contracting COVID-19.

Whether any of the claims suggested are likely to be successful will depend on whether the direction concerned was unlawful. This will turn on whether the conditions required to impose them under the Regulations have been satisfied.

Public inquiries

The burden of significant legal costs for councils may also be created if they are involved in any public inquiry over the Government's response to the pandemic.

The Prime Minister’s handling of the crisis has come under intense scrutiny and it seems inevitable there will be some form of inquiry into No 10’s official response. Devolved governments in Scotland and Wales have agreed that an independent inquiry should be held into their own handling of the pandemic.

It is common for director and officer policies to provide cover for the costs of directors and officers attending and giving evidence to official inquiries, which are usually expressed as 'regulatory investigation costs' or similar. These are usually under an extension to the main insuring clause, and sometimes subject to specific sub-limits of indemnity.

Where faced with difficult choices, or challenges, consider how you record those decisions and if necessary, consider your corporate risk register as part of that process.

Alex Traill, Professional Indemnity Partner, BLM (alexander.traill@blmlaw.com)

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