October 10, 2024
DEI Suit Brought Against Wells Fargo Bank
Do D&O Policies Cover Hiring Practices?
The short answer is that a Directors & Officers policy exists to protect the insureds against any type of action brought by shareholders, including allegations of not honoring diversity, equity, and inclusion (DEI)commitments. A case in point is the recent lawsuit against Wells Fargo Bank brought by its shareholders, specifically led by SEB Investment Management AB, among others.
The lawsuit alleges that Wells Fargo misled shareholders by promoting a commitment to diversity in its hiring practices while conducting sham interviews with non-white and female candidates it had no intention of hiring. The legal action claims that Wells Fargo’s practices deceived investors about the company’s true commitment to DEI initiatives.
Wells Fargo first attempted to get the shareholder case against it dismissed. While U.S. District Judge Trina Thompson of the U.S. District Court for the Northern District of California previously dismissed a version of the lawsuit in August 2023, she later found sufficient evidence of potential fraudulent intent in the revised lawsuit and ruled that Wells Fargo must face the claims. Judge Thompson’s decision was based on direct and indirect evidence that the bank intended to deceive shareholders about its commitment to hiring diversity.
Shareholders cited interviews with former employees, an internal whistleblower email, and the sudden retirement of a senior wealth manager who allegedly pressured the whistleblower into conducting fake interviews.
In a statement, Wells Fargo said it would continue defending against the lawsuit. It noted that the Department of Justice and Securities and Exchange Commission closed investigations into its hiring practices without taking action.
“Wells Fargo is deeply dedicated to diversity, equity and inclusion and does not tolerate discrimination in any part of our business,” it added. Wells Fargo’s share price fell 10.2% over two days in June 2022, wiping out more than $17 billion of market value, after the New York Times reported the Justice Department probe.
In any case, Wells Fargo, like many large corporations, likely holds several types of insurance that could potentially provide protection against a lawsuit alleging fraudulent practices related to its hiring policies. Key types of insurance that could be relevant include:
- Directors and Officers (D&O) Liability Insurance: to protect the personal assets of corporate directors and officers, and the company itself, against claims of wrongful acts, including allegations of fraud or misrepresentation. D&O insurance can cover legal fees, settlements, and other costs associated with defending against lawsuits brought by shareholders or regulators.
- Employment Practices Liability Insurance (EPLI): EPLI covers claims made by employees alleging discrimination, wrongful termination, harassment, and other employment-related issues. While this typically focuses on claims made by employees rather than shareholders, some policies might cover related regulatory investigations or lawsuits stemming from employment practices.
- Errors and Omissions (E&O) Insurance: Also known as Professional Liability Insurance, E&O coverage protects companies and their employees against claims of negligent acts, errors, or omissions in the performance of professional services. In some cases, this might extend to cover claims related to misrepresentations in hiring practices, especially if these practices are tied to the company’s professional services.
- General Liability Insurance: While general liability insurance typically covers bodily injury and property damage claims, some policies might include coverage for personal and advertising injury, which could potentially extend to certain types of misrepresentation claims.
In the specific context of the Wells Fargo lawsuit, D&O liability insurance would be the most directly relevant, as the lawsuit involves allegations of fraudulent statements made to shareholders, implicating the actions of the company’s directors and officers.