Directors and Officers (D&O) liability insurance protects the leaders of all companies, including those in the aviation industry, from personal financial losses that may arise from legal claims brought against them for their actions or decisions made on behalf of the company. This coverage includes protection for individuals serving on the board of directors, as well as officers such as the chief executive officer (CEO), chief financial officer (CFO) and chief operating officer (COO). It also extends to other executives and managers with decision-making authority within the company.
Why is having D&O insurance in place important?
Having D&O insurance in place is important for companies in the aviation sector, offering critical protection for those in leadership roles.
- Protects personal assets: It provides protection for the personal assets of directors and officers in the event of a lawsuit. Without D&O insurance, directors and officers could be held personally liable for damages and legal expenses, which could result in significant financial losses.
- Attracts talented individuals: D&O insurance can help attract and retain talented individuals to serve on the board of directors and executive positions, who may otherwise be hesitant to assume the risks associated with these roles.
- Enhances corporate governance: It promotes good corporate governance by encouraging directors and officers to act in the best interests of the company and make informed decisions without fear of personal financial consequences.
- Mitigates reputational risks: It can help mitigate reputational risks by providing resources to defend against allegations of wrongdoing and protect the company's reputation.
What risks are associated with the aviation industry?
Directors and officers in the aviation industry face a range of risks, including but not limited to:
- Safety: The aviation industry is highly regulated, and safety is crucial. Directors and officers can be held accountable for safety incidents due to negligence or non-compliance with regulations.
- Environment: Companies in the aviation sector are under increasing pressure to reduce emissions. Directors and officers can face legal action or reputational damage if environmental standards aren't met, and they should also be aware of the increasing likelihood of litigation related to greenwashing and greenhushing in certain jurisdictions.
- Cybersecurity: Due to its heavy reliance on technology, the aviation industry is vulnerable to cyber threats. Directors and officers can be held responsible for inadequate cybersecurity measures or failing to respond to an attack.
- Labour disputes: The aviation industry is heavily unionized, and directors and officers can be liable for failing to negotiate or mishandling certain disputes.
- Regulatory compliance: Companies are subject to numerous national and international regulations. Directors and officers can be held accountable for noncompliance or inadequate measures.
- Financial: The aviation industry is capital intensive. Directors and officers can face liability because of mismanagement, fraud or financial irregularities.
- Business interruption: As the aviation industry is vulnerable to unforeseen events, such as terrorism, weather events, or the recent pandemic, directors and officers can be held accountable for failing to implement contingency plans or respond appropriately to a crisis.
- Bankruptcy: Directors and officers can be held accountable for mismanaging finances or failing to implement cost-cutting measures, especially during an economic or industry downturn, potentially leading to bankruptcy. Due to the number of potential creditors, these claims can be some of the most expensive for D&O insurers.
Claims scenarios
Safety
An airline is involved in a major accident or incident that results in significant loss of life and property damage. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to ensure adequate safety measures were in place and that they failed to properly train and oversee employees.
Environment
An airline's directors and officers incurred investigation costs whilst responding to a regulatory investigation into an advertising campaign launched by the company, with allegations that it misled consumers around its environmental footprint and green credentials by using terms such as 'sustainable', 'responsible' and 'green'.
Cybersecurity
An airline suffers a data breach or cyber attack that results in the theft of sensitive customer information. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to properly protect customer data and that they failed to implement adequate cybersecurity measures.
Labour disputes
Directors and officers can be liable for an airline experiencing a prolonged labour dispute, such as a strike or lockout that results in significant disruption to operations and financial losses. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to properly manage labour relations and negotiate a fair resolution.
Regulatory compliance
An airline is fined by regulators for violating aviation regulations, such as failing to properly maintain aircraft or failing to comply with safety requirements. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to ensure compliance with regulatory requirements and that they failed to adequately manage regulatory risks.
Financial risks
An airline experiences significant financial losses due to factors such as rising fuel prices, currency fluctuations or unexpected market downturns. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to properly manage financial risks and that they made risky or imprudent business decisions.
Business interruption
An airline experiences a major disruption to operations, such as a natural disaster or political unrest that results in significant financial losses. Shareholders may bring a D&O claim against the company's directors and officers, alleging that they failed to adequately plan for and manage business interruption risks.
Bankruptcy
Shareholders may bring a D&O claim against the company's directors and officers, alleging that they engaged in fraudulent or reckless conduct that contributed to the company's financial difficulties and ultimate failure.
How can Gallagher help?
Gallagher clients can benefit from the extensive experience and expertise of our placement team, along with access to a proprietary suite of broad D&O and crime wordings, as well as insightful risk management tools.
In conjunction with the Placement team, Gallagher has a highly regarded Management Liability Claims team, ready to represent and support you if a claim is brought or allegations are made. Additionally, the Gallagher Aerospace team's deep understanding of your business and insurer relationships provides leverage to achieve optimal outcomes across all lines of insurance.
With access to Lloyd's, London Company and international markets, we ensure all viable options can be explored.
