The reinstatement of executive orders in the second Trump administration directing federal agencies to eliminate diversity, equity, and inclusion (DEI) initiatives and scrutinize private employer practices has raised concerns over potential risks for directors and officers (D&O) and employment practices liability (EPL) insurance lines.
Following a temporary pause in February, the 4th Circuit Court of Appeals ruled on March 14 that the government is likely to prevail in defending the orders, stating they do not violate the First and Fourth Amendments.
With the orders back in effect, federal agencies are now expected to determine how to implement the directives, which primarily require agency heads to collect data on DEI programs, according to Jonathan Meer, a partner at law firm Wilson Elser.
Meer noted that most of the orders focus on internal government programs, but some address government contractors, which could impact private companies. He said any new requirements for public companies would take time to develop.
The executive orders have also drawn increased attention to DEI initiatives, including scrutiny from attorneys general across political lines. In February, a group of attorneys general issued a joint statement asserting that DEI initiatives are legal, while in March, another group urged a major retailer to end its DEI program.
Meer said the heightened focus on DEI creates additional considerations for corporate directors and officers, with insurers closely watching the evolving legal landscape.
Lindsay Cunningham, North American leader for Willis Towers Watson’s public sector and education industry division, said carriers writing D&O coverage are preparing for a potentially more litigious environment.
While Trump’s executive orders have drawn attention to DEI programs, much of the legal activity surrounding them stems from the US Supreme Court’s 2023 decision striking down affirmative action.
In recent years, several notable legal cases have emerged where plaintiffs alleged discrimination resulting from DEI hiring practices.
In the landmark case of Ricci v. DeStefano in 2009, 19 white firefighters and one Hispanic firefighter sued the city of New Haven, Conn., after the city invalidated a promotion exam because no Black firefighters scored high enough to be promoted.
The Supreme Court ruled in favor of the plaintiffs, stating that the city's decision to discard the test results violated Title VII of the Civil Rights Act, as there was no strong evidence that the test was biased against minority candidates.
A more recent case involved former financial advisor Bryan D. Winter, who filed a lawsuit against Edward Jones, alleging that the company's DEI policies discriminated against white financial advisors. The lawsuit claims that the firm's equity initiatives favored diverse advisors in terms of compensation, benefits, and career opportunities, creating a disadvantage for white advisors.
Cunningham said lawsuits against corporate DEI programs often attempt to position cases within the Supreme Court’s 2023 decision while also alleging that directors and officers breached their duties of care and loyalty.
She added that insured entities are now shouldering much of the burden in managing these risks.
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