A new presidential administration always brings changes that impact a broad spectrum of industries. And the Biden Administration figures to be no exception. There have been numerous thoughtful articles about how President Biden’s administration could reshape federal agencies’ priorities and impact various industries. One such article, by my Wiley colleague Duane Pozza, focuses on the FTC. Duane identified five areas that a Biden FTC is likely to prioritize. Duane’s whole article is interesting in its own right, but one point jumps out that will almost certainly impact the D&O insurance world—an increase in seeking individual liability for directors and officers.
President Biden has named a new Acting Chairperson of the FTC, choosing a current Democratic Commissioner, Rebecca Kelly Slaughter. Biden will also have the chance to fill a vacant seat on the FTC, with the result being a 3-2 Democratic majority.
Traditionally, individual liability was relatively rare and relegated to cases involving smaller entities. However, both Acting Chairwoman Slaughter and her Democratic colleague Commissioner Rohit Chopra have been outspoken in arguing that individual corporate leaders at larger companies should be held liable in cases involving alleged misconduct by their companies. For example, Acting Chairwoman Slaughter dissented from a settlement because it failed to impose any liability on the CEO and senior leadership. See, e.g., Dissenting Statement of Commissioner Rebecca Kelly Slaughter, Regarding FTC v. Progressive Leasing (April 20, 2020), at 3-5, available here. She reasoned that “the proposed monetary relief by itself will neither adequately remediate harm nor incentivize future compliance.” Id. Commissioner Chopra has taken similar positions. See, e.g., Dissenting Statement of Commissioner Rohit Chopra, In re Facebook, Inc. (July 24, 2019), at 10-12, available here. In one dissent he stated that “it is appropriate to charge officers and directors personally when there is reason to believe that they have meaningfully participated in unlawful conduct, or negligently turned a blind eye toward their subordinates doing the same.” Id. President Biden has nominated Chopra to head the Consumer Financial Protection Bureau. However, it seems likely that whoever is nominated to replace Chopra will likely share these views.
D&O coverage insures a company’s directors and officers. Depending on the coverages purchased, it can also provide additional coverage for the company itself (usually, for public companies, limited to securities claims). FTC investigations are frequently tendered to insurance carriers for coverage under D&O policies. Whether there is coverage often turns on whether the investigation is of individual directors and officer or of the company itself. Investigations of individuals may be covered whereas investigations of the company may not be (or may be subject to higher retentions or other limitations). Often coverage disputes arise as to whether the FTC is truly investigating the company or its directors and officers. The Biden FTC’s increased focus on individual liability will likely clarify those disputes but could also lead to increased exposure for insurers writing D&O policies.
Along with our colleagues in Wiley’s FTC practice, we will continue to closely monitor developments at the FTC, with a particular focus on implications for insurance carriers.