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Director & Officer Liability Issues Post-Roe: Dobbs v. Jackson FAQs

August 3, 2022

/Management Liability/D&O

Dobbs v. Jackson Women’s Health Organization is the landmark US Supreme Court decision that effectively overturned settled case law (Roe v. Wade) by holding that the United States Constitution does not confer the right to abortion, leaving abortion law to be decided by individual states.

Some employers—and their employees—have welcomed this ruling. Others have not. Many companies in the latter category are looking for ways to provide pregnancy termination services to employees who live in states where such services are unavailable.

While some major companies have been vocal about providing a medical travel benefit or reimbursement program, the vast majority of companies have been silent as they attempt to grapple with the issues, given a myriad of legal implications in an uncertain, unstable legal environment.

We tackled the topic of legal compliance post-Dobbs in a recent webinar (which you can view on demand) that addressed two parts of this issue from an employer’s perspective: 1) employee benefits legal compliance, and 2) corporate liability, including for directors and officers of companies that might provide a medical travel benefit.

My colleague Jennifer Chung, Vice President, Senior Compliance Officer of Employee Benefits, published an article on benefits compliance FAQs that has already proven to be a valuable resource for companies seeking to understand the issues.

This article focuses on the director and officer liability issues for those companies that wish to provide a medical travel benefit or reimbursement program to employees in states where pregnancy termination services are restrictive.

Politics and Grappling with Dobbs

The Dobbs issue is just one more instance in a series of situations in which corporations are being dragged into political matters. As with other culturally divisive issues, employers are having to steer through turbulent waters.

Employer reactions are going to vary greatly depending on the type of company—is it public or private? Are you in a highly regulated industry or not? Do you have a large employee base that is very active on social media, or not? Are your clients and vendors pressuring you to make a statement or take a position? Is your company an iconic company that has otherwise been the target of politicians in the past? (See, for example, the Disney-DeSantis dispute.)

The decision of how to respond is being further clouded by aggressive political posturing. For example, some states like Texas have political parties that are threatening companies with criminal consequences if they provide a travel benefit for pregnancy termination services. There are also threats of civil liability as well.

Finally, some companies have an ethos of speaking publicly about political issues, while others have historically refrained from doing so. Some companies have even announced that they have decided to be aggressively politically neutral, which presumably includes discouraging political conversations in the office.

Boards are certainly not obligated to make any statements. They should assume, however, that any internal policy positions or statements will make their way to the outside world.

What Are the Potential Legal Consequences for Directors and Officers of Companies That Provide Travel Benefits for Pregnancy Termination Services?

The Dobbs decision has rocked the legal landscape, making predictions about consequences challenging. What follows in this section is a framework to consider regarding the types of litigation that may apply to a particular company, something that directors and officers can use to make an informed business decision about what actions they may decide to take.

It is typically useful to consider two categories: Litigation brought by the government, whether civil or criminal, and private litigation brought by plaintiffs.

On the government front, how companies respond to Dobbs will vary. No company wants to be in the crosshairs of the government, be it federal, state, or any other level of government. However, companies that are highly regulated may find that even the threat of an indictment of their directors and officers is highly problematic.

Companies that are directly regulated by the government, are dependent on government contracts, or have to be licensed to do business will often be more sensitive to the threat of government action on Dobbs issues compared to companies that do not share these constraints. (See, for example, Arthur Andersen’s demise, even though the Supreme Court ultimately reversed the conviction.)

A lot of directors and officers are asking if they could be charged with a crime or with aiding and abetting a crime if their company provides a travel benefit for pregnancy termination services. Right now, this feels like a stretch.

Consider the fact that Supreme Court Justice Brett Kavanaugh has clarified that states may not bar travel to obtain an abortion. However, there is no doubt that some ambitious prosecutor will bring a case to challenge this. In other words, the aiding and abetting concern is not outlandish. Indeed, the Texas Freedom Caucus has famously threatened the law firm Sidley Austin with this and more.

Turning to private litigation, there are two main categories that directors and officers usually worry about: 1) securities class action suits, and 2) breach of fiduciary duty suits. Securities class action lawsuits, frankly, seem far-fetched and unlikely given the issue at hand.

It is the breach of fiduciary duty suit that directors and officers want to keep an eye on post-Dobbs. Breach of fiduciary duty suits are a real and serious threat. I’ve written in the past about the duty of oversight claims and the importance of board-level monitoring of company risks.

The good news is that good governance processes will be an effective defense should a shareholder attempt to bring a breach of fiduciary suit against a board that elects to provide a travel benefit for pregnancy services.

What Is a Good Process for a Company That Wants to Consider Providing Travel Benefits for Pregnancy Termination Services?

Practically speaking, grappling with Dobbs is no different than taking a thoughtful approach to any serious issue faced by a corporation. Directors and officers need to make a business decision and document it well.

Contemporaneous documentation in the form of robust board minutes is particularly important in case of future litigation. An example might be a Section 220 books and records request, a typical precursor to a breach of fiduciary duty suit.

For the Dobbs discussion, consider first bringing in your chief human resource officer, general counsel, and your trusted insurance brokerage to present to the board. The idea here is to inform the board of its options and the various consequences.

While legal issues may be a major part of discussion, so, too, may things like employee expectations and engagement—not to mention the various legal defenses a company may have if its decision is later challenged.

At this point, a board could decide to delegate next steps, including deciding what the company’s posture will be, to management. After all, boards typically do not get involved with employee benefits matters at a granular level.

However, some boards may determine that their company’s Dobbs response is a board-level issue. For example, a board might determine that the matter is one that raises issues related to the corporation’s stated values. Or a board might determine that the matter is likely to have a large enough impact on employee recruitment and retention, or perhaps its consumers, in a way that it is material to the company.

It’s important to note that deciding who will make decisions—management or the board—does not mean the company will or will not provide a travel benefit. The work of gathering information, examining the issues, and making a decision would follow. As always, appropriate documentation of these steps is part of having a good process.

Whatever the decision, it is critically important that the board ensures that management reports back on a regular cadence. What you can’t have is:

  • A failure to set up a system that brings to the board’s attention important risks and issues that impact the company
  • A board that does not respond when this system brings risks and issues to its attention

On this last point, board members will need to stress that they want to be made aware of any Dobbs-related governmental investigations, litigation, fines, or penalties. The AmerisourceBergen case provides a cautionary tale in this regard.

Finally, as companies weigh their choices, they will want to keep in mind the rank-and-file employees who will be in charge of executing whatever the plan turns out to be.

Given the emotionally charged nature of the issue, it makes sense to take special care when considering how to support these employees. This might range from talking points to indemnification agreement contracts to physical security, depending on the situation.

Protection for Directors and Officers Post-Dobbs

As always, directors and officers wand to know what coverage may exist if litigation arises. This analysis should include indemnification agreements, D&O insurance, and more, which I’ll discuss next.

Indemnification Agreements

Now is a good time for directors and officers to revisit their personal indemnification agreements. An indemnification agreement is a contract between an individual director or officer and the company the director or officer serves.

These agreements promise to 1) advance legal fees, and 2) pay loss (indemnification) on behalf of an individual should they be named in a lawsuit in their capacity as a director or officer of the company.

While companies typically cannot pay or reimburse directors and officers for fines and penalties levied by the government, they can pay for the cost of defense.

Insurance

D&O Insurance

Every insurance policy is different, and specific policy wording matters. This is a good time to confirm that an expert is brokering your D&O insurance—particularly as insurance carriers themselves are concerned about their exposure to Dobbs-related litigation and may seek to insert exclusions into their policies.

Most D&O insurance policies will advance legal fees after the company has paid the self-insured retention (similar to a deductible) for any matter in which directors and officers are named in this capacity. This should be true for civil as well as criminal matters.

Remember, however, that when the government imposes fines and penalties, it typically will not settle the matter unless individuals affirm that insurance or the company they serve is not reimbursing them for their payments.

Turning to civil litigation, the defense and settlement of derivative suit litigation is typically covered by D&O insurance, and this should be the case with Dobbs-related issues absent a specific exclusion. Note, however, that coverage is often limited (if it exists at all) for the investigation of a corporate entity, including a Section 220 books and records request.

When directors and officers are sued, their company is typically named in the litigation as well. Unlike the private company form of D&O insurance, the public company form of D&O insurance typically only provides coverage for the company when it is named in a securities claim.

This means that Dobbs-related litigation filed against the company may not be covered by D&O insurance (unless the litigation meets the policy’s definition of a securities claim).

Employment Practices Liability Insurance

Employment practices liability insurance is unlikely to be a “first responder” to Dobbs-related litigation since the policy’s third-party liability response is usually limited to issues of discrimination and harassment.

But will someone bring a discrimination or hostile workplace claim at some point? Someone already has. If many more such cases are filed, expect to see some insurance carriers attempt to impose exclusions for this type of litigation on their policies.

Fiduciary Liability Insurance

Fiduciary liability insurance includes coverage for ERISA-related matters as well as mismanagement of employee benefit plans.

Depending on the manner in which a claim is brought, it might provide some coverage. This is again, however, a place where insurance carriers are likely to impose exclusions if there is a rash of Dobbs-related claims that turn out to be covered by these policies.

Final Thoughts

There can be no doubt that Dobbs has created a whole host of particularly difficult issues for corporate America. The good news for directors and officers, however, is that they are well-served by following a good corporate governance process in addition to having in place robust personal indemnification agreements and insurance programs, particularly D&O insurance.

ON-DEMAND WEBINARS

Post-Roe Compliance Think Tank Session

The Supreme Court’s ruling in Dobbs, that abortions are not a federal constitutional right, has caused employers to ask how this new ruling affects benefits compliance as well as potential liability for directors and officers.

WATCH NOW »

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn