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Privacy, sexual misconduct pose D&O risks

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Privacy breaches and sexual misconduct revelations may trigger more directors’ and officers’ (D&O) claims in Australia if US trends are followed, management liability specialist Kevin LaCroix says.

“Our legal systems and legal cultures are not that different,” Ohio-based Mr LaCroix told insuranceNEWS.com.au. “Even though we are more litigious in the US, these emerging trends reflect possibilities for future litigation in Australia.”

Data breach-related lawsuits were filed last year against Yahoo, Equifax and PayPal, while Facebook has been sued this year in a securities class action related to the release of user data to a third party.

And Mr LaCroix, Executive Director of RT ProExec, says sexual misconduct accountability has moved beyond perpetrators to management and directors accused of turning a blind eye.

“That sequence is not unique to the US and that is another area that could well develop here,” he said.

In a presentation to the Australian Professional Indemnity Group conference in Sydney, Mr LaCroix said Michigan State University has settled 90 lawsuits alleging sexual assault by a university doctor.

Lawsuits have also been brought against the Weinstein Company after allegations against film producer Harvey Weinstein.

Mr LaCroix says a surge in Australian D&O premiums reflects market consensus that prices must rise after an unanticipated jump in class action costs over the past decade.

“The self-correcting mechanism in the insurance industry is finally resetting, so rather than having pricing based on a set of expectations that is completely out of date, it is finally getting calibrated on what the risk is today, rather than where we were 10 years ago,” he said.

“The way to try to achieve long-term profitability is to make sure you know what your profit-making price is, and that you only write business at that profit-making price.”

Mr LaCroix says sharemarket continuous disclosure rules in Australia and Canada are more challenging than the periodic reporting requirements in the US.

“It creates opportunities for pitfalls even among well-intentioned, well-run companies.”

He says there is a global trend towards more D&O-style claims and the severity is also increasing, although the drivers differ according to the region.