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As accountability in corporate leadership continues to broaden across a wider range of issues, legal challenges remain a significant concern for businesses. In Sovereign Insurance&rsquo;s annual Q&amp;A series, <a href="https://www.sovereigninsurance.ca/our-team/toronto/eduard-lecker" title="" target="">Eduard Lecker</a>, Senior Underwriter, &nbsp;Management Liability, shares his insights on key loss trends and exposures in this area in 2024 and what organizations should be aware of in 2025 as new risks take shape.&nbsp;
What were the key loss trends and exposures you saw in 2024?
The key loss trend in 2024 remained consistent with the previous year: an increasing number of claims focused on environmental, social and governance (ESG).1 These legal actions&mdash;which can be initiated by consumers, shareholders and investors, and environmental advocacy groups&mdash;are typically centred on allegations related to greenwashing and climate change. For example, a company might make misleading claims about its environmental strategies or fail to disclose climate-related risks, which can expose them to significant legal and financial risks.&nbsp;
What are some emerging risks to keep an eye out for in 2025?&nbsp;
One emerging risk is claims related to artificial intelligence (AI). As more companies use AI, there&rsquo;s a growing risk of misrepresentation about what these systems can do. Some tech companies may overstate AI&rsquo;s capabilities. Companies using AI for hiring, financial reporting, or ESG decision-making are especially vulnerable, as they could face legal action if the technology doesn&rsquo;t live up to expectations. For example, AI systems that filter job applicants can have unintentional biases, and companies may claim that AI can replace human decision-making&mdash;when, in reality, there&rsquo;s still a lot of human oversight involved. If AI tools generate inaccurate reports&mdash;like pulling up the wrong numbers&mdash;and those figures influence critical decision-making, legal claims can arise. Similarly, when companies use AI to track their environmental impact, inaccurate data could also expose them to risk.
There are a couple of emerging issues in the U.S. to keep an eye on, as developments there often follow suit in Canada. Under the new U.S. &nbsp;leadership, there are rollbacks in climate policies and diversity, equity and inclusion initiatives. For example, the U.S. has pulled out of the Paris climate agreement, which could prompt companies to scale back their own sustainability effects. This could expose them to legal challenges from groups that feel misled by these changes.&nbsp;
With the current trade war between the U.S. and Canada, there&rsquo;s growing sentiment around &lsquo;Buy Canadian,&rdquo; but labelling what qualifies as Canadian-made is complicated. For instance, a product might contain American apples processed in Canada but is labelled as being made in Canada. If a product doesn&rsquo;t meet legal definitions of terms like &lsquo;Product of Canada&rsquo; or &lsquo;Made in Canada,&rsquo; this could lead to claims. &nbsp; For example, if incorrect labels lead to misrepresentation of a product or its origin, it could lead to claims of misrepresentation or breach of contract.&nbsp;
We&rsquo;re also keeping an eye on U.S. cases in which directors and officers are facing personal liability in lawsuits. Holding directors personally liable for their decisions could lead to more legal challenges and impact decision-making at the top level. &nbsp;
How can organizations mitigate these risks?&nbsp;
For AI, it really comes down to transparency. Don&rsquo;t overstate, misrepresent, or overpromise what AI can do, and understand the legal consequences of any claims you make. It&rsquo;s similar to how companies should approach environmental strategies&mdash;be transparent about your actions and results. Like the saying goes, &lsquo;understate, overperform.&rsquo;
For the developments that we&rsquo;re watching in the U.S., it&rsquo;s difficult to say how to mitigate against them because there are still a lot of unknowns. When it comes to labelling Canadian products, it&rsquo;s important to be aware of the legal requirements. Transparency is key here, too&mdash;if there&rsquo;s any uncertainty, you can direct customers to your website where you outline your process, which some companies are starting to do. If you&rsquo;re not misrepresenting your actions, you&rsquo;re far less likely to face legal issues.&nbsp;
Sources 1 Jan. 31, 2025: Moodys, &ldquo;D&amp;O series &ndash; Evolving risks in the boardroom: A new era of D&amp;O liability &ndash; Part 3&rdquo; 1 Aug. 22, 2024: McCarthy Tetrault &ldquo;Greenwashing and AI Washing: Emerging Trends in D&amp;O Claims Across North America&rdquo; 1 Oct. 22, 2024: &ldquo;The Insurer: Greenhushing &ndash; An emerging D&amp;O liability?&rdquo;

Loss trends and emerging risks in 2025: Management liability 

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As businesses continue to rely on essential machinery and equipment, the risk of damage and breakdowns remains a significant concern. These incidents can disrupt operations, lead to costly repairs and result in extended downtime. &nbsp; As part of our annual Q&amp;A series, <a href="https://www.sovereigninsurance.ca/our-team/calgary/razvan-ionescu">Razvan Ionescu</a>, Manager, Equipment Breakdown Underwriting, Large Accounts &amp; Operations at Sovereign Insurance, shares insights into key loss trends from 2024 and emerging risks that organizations should be aware of in 2025.&nbsp; What were the key loss trends and exposures you saw in 2024? If we were to look for trends in the equipment breakdown insurance industry, the most notable phases would be the heating season and the cooling season. In colder months when heating systems are activated, for example, boilers that are used for heating buildings might experience breakdowns. This happens because they haven&rsquo;t been used for an extended period and when they&rsquo;re restarted, can fail due to improper shutdowns or lack of maintenance during the off-season. Similarly, with cooling systems, a lack of ongoing use and maintenance can lead to mechanical failures. In addition to seasonal concerns, we continue to see typical breakdowns of production machinery, transformers, and other equipment that businesses rely on day in and day out. This can be caused by issues like aging equipment, wear and tear, and lack of preventative maintenance.&nbsp; What are some emerging risks to keep an eye out for in 2025? One emerging risk I&rsquo;ve seen is a shift from traditional generators to electric or lithium-ion batteries as backup power sources or to reduce the on-peak service use. While generators have been in use for a long time, some businesses are turning to electric batteries. This shift brings new risks, especially when it comes to maintenance and exposure. With traditional generators, you typically need a mechanical specialist on-site to keep things running smoothly. But with electric batteries, the high-capacity maintenance is usually handled by the OEM (original equipment manufacturer), who monitors the battery&rsquo;s performance in various ways, for instance, through remote monitoring. So, the whole approach to upkeep is different. A big concern here is fire risks. Batteries are prone to something called thermal runaway, which is a chemical reaction inside the battery that causes it to overheat and potentially catch fire. This can happen without the presence of oxygen, which makes it more dangerous than other types of fires. If a thermal runaway event happens, it could damage the entire battery system, which might cost a company hundreds of thousands to replace. And of course, there are significant human safety risks with any type of fire. In contrast, if something in a backup generator breaks down, it&rsquo;s typically a mechanical issue that can be fixed &ndash; similar to how you would repair a car. How can organizations mitigate these risks? To keep machinery and equipment running smoothly and safely, the best approach is to follow the OEM recommendations. For example, if the OEM advises performing thermal scanning on batteries on a regular basis, it&rsquo;s important to stick to that schedule. There&rsquo;s a well-known saying: &ldquo;If you don&rsquo;t schedule maintenance, your equipment will schedule it for you.&rdquo; By regularly scheduling maintenance, you can ensure it&rsquo;s completed on time and reduce the chances of delays in sourcing spare parts. When it comes to batteries, there are also specific best practices to follow around proper use, storage, transportation, and disposal. Organizations should familiarize themselves with these guidelines to minimize risks. For any type of equipment, preventative maintenance is essential. Although insurance policies are designed to cover profit losses during downtime, the key is to maintain uninterrupted service to customers.

Loss trends and emerging risks in 2025: Equipment breakdown

From distracted driving on busy highways to the explosive rise of quick e-commerce deliveries on city streets, the landscape of risk is rapidly shifting for the transportation sector. As part of Sovereign&rsquo;s 2025 Q&amp;A series, Kevin Dutchak, Senior Risk Specialist, Commercial Auto, provides insights into the key loss trends of 2024 and offers practical advice on how businesses can mitigate risks to protect their operations this year and beyond.
<h4>What were the loss trends and key exposures you saw in 2024?</h4>
Distracted driving is still a big issue and it&rsquo;s becoming even more significant with the growing use of technology in the industry. Technology can be great, but it can also be distracting. For example, some drivers try to map out routes on the fly, and in the e-commerce delivery space, drivers are constantly looking at addresses along residential streets. These kinds of distractions may lead to a lot of loss incidents.
Additionally, traffic seems to get busier all the time. During rush hour and with ongoing construction, it&rsquo;s like that old video game, Frogger, with drivers switching lanes back and forth, speeding, suddenly cutting in front of other drivers, and trying to get ahead of everyone. Statistics show that road travel continues to be the riskiest form of transportation, from property loss and minor fender benders to serious injuries and fatalities. When you add distracted driving and traffic congestion into the mix, it can increase the risk significantly.
Driver controls are another ongoing issue. For example, there are cases where drivers took short cuts to try to save time. But that winding two-lane highway with limited passing lanes, for instance, can put you more at risk, especially in winter conditions.
<h4>What emerging risks should businesses be aware of in 2025?</h4>
Climate change and severe weather events are becoming more of an issue for the transportation sector. We&rsquo;re seeing more frequent storms and extreme temperatures, which can cause delays and put drivers in unsafe situations.
While cybercrime is becoming more of a risk in many industries, I don&rsquo;t see much of that in trucking yet. But as more companies integrate artificial intelligence into their operations, they should ask what they&rsquo;re doing to protect themselves so people can&rsquo;t hack into that and use it to their advantage.
<h4>How can organizations effectively mitigate these risks?</h4>
When it comes to distracted driving, the key to mitigation is the constant reminder that driving is your job 100% of the time. You can&rsquo;t afford to compartmentalize your thinking&mdash;you have to concentrate on the road because it&rsquo;s such a fluid situation.
Sound defensive driving practices are also critical. I&rsquo;m surprised at the number of fleets that don&rsquo;t provide that training, assuming that because their drivers have a licence, they don&rsquo;t need it. But despite our best efforts, we can all become complacent, distracted and forgetful. So, companies need to get the focus back on training. It&rsquo;s an investment in your drivers that can pay dividends.
In terms of driver controls, trip management programs can mitigate risks. Managers should have discussions with drivers to outline expectations: Here is when we expect you to be on the road, this is the route we expect you to take, here&rsquo;s when we expect you to stop. When there is an interruption to the plan due to situations such as poor road and weather conditions, traffic delays on route and driver fatigue, protocols should be in place for drivers to communicate with dispatch and operations staff to keep them advised, which in turn can be communicated to their clients. The safety of drivers and other road users is always the top priority. Telematics can also be used to monitor drivers&rsquo; routes and ensure drivers are following the proper procedures, such as speed limits and safety protocols.
If a driver does have a significant loss event, it&rsquo;s critical for companies to take effective corrective action, such as retraining or a driver interview. Often, a lack of corrective action can lead to further and more significant losses.
For weather events, fleet operations should focus on forecasting models, if they aren&rsquo;t doing so already. When severe weather conditions are imminent, companies should consider shutting down operations in the affected areas; all drivers should find the first safe place to park, advise dispatch of their status and stay in place until the shutdown order is lifted.

Loss trends and emerging risks in 2025: Transportation 

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On many fronts, it&rsquo;s sunny skies ahead for the transportation and logistics industry, as supply chain pressures have eased and global bottlenecks have improved.1&nbsp;However, there is a warning sign companies need to heed: Cyberattacks are on the rise &ndash; and they can have wide-ranging consequences.&nbsp; Just look at the headline-making cyberattack on Expeditors International of Washington in 2022. As The Washington Post reports, the Seattle-based global logistics company shut down most of its operating and accounting systems to protect its data and infrastructure following the cyberattack. In turn, that limited its ability to ship freight, manage customs processing and distribute products.&nbsp;2 In a statement, Expeditors said depending on the length of the shutdown, the impact of the cyberattack could have an adverse impact on its business, revenues, results of operations, and reputation.3&nbsp;The outage lasted three weeks. Later, in its annual report, Expeditors said the cyberattack cost the company US$47 million in extra charges, with an additional US$18 million for consulting services costs, including cybersecurity experts, outside legal advisors, and other IT professional expenses.4 See:&nbsp;<a href="https://www.sovereigninsurance.ca/advice-and-tools/managing-risk/do-you-need-a-data-breach-coach" target="_blank" rel="noopener">Do you need a data breach coach?</a> Truly, no business or sector is immune from cyberattacks today. According to IBM, transportation was the ninth most-attacked industry in 2022, with nearly 4% of all cyberattacks aimed at the sector. Phishing was the most common attack, accounting for 51% of cases. Data theft was the most common outcome of cyberattacks (50%), followed by extortion and impacts on brand reputation (25% each).5 While attacks are hitting close to home, cybersecurity may not be as top-of-mind in the transportation and logistics industry as it is in other sectors, says&nbsp;<a href="https://www.sovereigninsurance.ca/our-team/calgary/derek-james" target="_blank" rel="noopener">Derek James</a>, Commercial Auto Underwriting Specialist at Sovereign Insurance.&nbsp;&nbsp; &ldquo;Many transportation companies don&rsquo;t view themselves as computer-based operations, even though they have embraced digital technologies,&rdquo; he says. &ldquo;They may think because they&rsquo;re not a financial institution, for example, they&rsquo;re not as vulnerable to cyberattacks and will fly under the radar. But today, no one has immunity against cyberattacks.&rdquo;&nbsp; In fact, as the sector becomes more digitally connected, it becomes an even more attractive target. Many transportation and logistics companies now have large digital footprints, with vast amounts of data processing and information sharing. For example, documents that were traditionally paper-based, such as invoices and bills of lading, are now digital.&nbsp; See:&nbsp;<a href="https://www.sovereigninsurance.ca/advice-and-tools/hot-topics/what-you-need-to-know-about-bills-of-lading-and-fraud" target="_blank" rel="noopener">What You Need to Know About Bills of Lading and Fraud&nbsp;</a> That means fleet operators are sharing more data digitally with their partners, which can expose them to more cyber risks. In addition, companies all along the supply chain may have varying levels of cybersecurity measures in place, so cybercriminals can exploit weak links in the network.6 Trucks themselves are now electronically connected and house sensitive data, which can give cybercriminals reason to infiltrate computer systems or even shut down a truck completely.7&nbsp;Electronic logging devices (ELDs) house data on vehicles (including positions and history), drivers (including driver&rsquo;s licence and date of birth), and corporations and systems.8 &ldquo;Cybercriminals can not only access and steal data to sell to a competitor or hold for ransom, but they can also use the information to find out the physical location and contents of the cargo, making the cargo itself vulnerable to theft,&rdquo; says Derek. &ldquo;Even if they don&rsquo;t physically take the cargo but launch a cyberattack that prevents trucks from getting dispatched because their system is down, there&rsquo;s loss of business. If your shipments are delayed or ruined (if you&rsquo;re hauling food), your customers may turn to competitors and that could be a big concern.&rdquo; When it comes to employee data, Derek notes this is more readily shared in trucking &ndash; and as a result, is more vulnerable &ndash; compared to companies in other sectors. &ldquo;Driver details are not just given to the human resources manager; their information is given to fleet managers and safety managers and is often shared with external partners,&rdquo; he says. &ldquo;Not only is there a concern for the loss or theft of their personal information, but a company could face fines or penalties for not following proper protocols.&rdquo; How can companies mitigate risks? In any sector, a strong prevention strategy is the best defence against cyberattacks. For transportation and logistics companies, it starts with ensuring their business is equipped with the right cyber knowledge and skills. Trucking businesses, for example, often lack skilled IT personnel, leading to limited monitoring and defences.9&nbsp;With an ongoing shortage of cybersecurity professionals, companies may wish to turn to external partners for help.&nbsp; One of the most effective measures in protecting against cyberattacks is employee training. Since phishing emails represent the majority of attacks, training employees to be hyper-vigilant in recognizing the signs of a phishing email is a good first line of defence.10 See:&nbsp;<a href="https://www.sovereigninsurance.ca/advice-and-tools/managing-risk/cyber-loss-prevention-how-to-mitigate-cyber-risks-to-your-business" target="_blank" rel="noopener">Cyber loss prevention: How to mitigate cyber risks to your business</a> On the more technical side, a prevention strategy should include ensuring enterprise systems and software are run according to policy and have the latest updates to plug any potential vulnerabilities. Using a cloud storage service &ndash; while not foolproof &ndash; can also help ensure security.11 Another risk control is having the right insurance coverage in place, which can help with financial losses in the event of a cyberattack. &ldquo;Coverage is important to help protect your business from financial losses, but it&rsquo;s just one part of a proactive cyber risk management plan,&rdquo; says Derek. &ldquo;No company wants to deal with damage to their reputation or loss of customers if they experience a cyberattack, so prevention is key.&rdquo;&nbsp;
&nbsp;
Sources&nbsp; 1&nbsp;Forbes, &ldquo;<a href="https://www.forbes.com/sites/billconerly/2023/03/02/supply-chain-pressures-easing-good-news-for-inflation-and-production/?sh=23ced7ed15b5" target="_blank" rel="noopener">Supply Chain Pressures Easing&mdash;Good News For Inflation and Production</a>,&rdquo; March 2, 2023 2&nbsp; The Washington Post, &ldquo;<a href="https://www.wsj.com/articles/a-cyberattack-forced-a-logistics-company-to-temporarily-halt-operations-dde27a19" target="_blank" rel="noopener">A Cyberattack Forced a Logistics Company to Temporarily Health Operations,</a>&rdquo; April 26, 2023 3&nbsp;Expeditors, &ldquo;<a href="https://investor.expeditors.com/press-releases/2022/02-21-2022-032617120" target="_blank" rel="noopener">Expeditors Targeted in Cyber-Attack</a>,&rdquo; Feb. 20, 2022&nbsp; 4&nbsp; Expeditors, &ldquo;<a href="https://investor.expeditors.com/~/media/Files/E/Expeditors-IR-V2/annual-reports/expd-2022-annual-report.pdf" target="_blank" rel="noopener">Expeditors Annual Report 2022</a>&rdquo;&nbsp; 5&nbsp; IBM, &ldquo;<a href="https://www.ibm.com/downloads/cas/DB4GL8YM" target="_blank" rel="noopener">X-Force Threat Intelligence Index 2023</a>&rdquo; 6&nbsp;Supply Chain Quarterly, &ldquo;<a href="https://www.supplychainquarterly.com/articles/7239-the-rising-risk-of-cybercrime-in-the-supply-chain" target="_blank" rel="noopener">The rising risk of cybercrime in the supply chain</a>,&rdquo; Oct. 13, 2022 7,11&nbsp;The Trucking Network, &ldquo;<a href="https://thetruckingnetwork.ca/cyber-attacks-on-trucking/" target="_blank" rel="noopener">Cyber-attacks on trucking,</a>&rdquo; June 8, 2023 8,9&nbsp;TruckNews.com, &ldquo;<a href="https://www.trucknews.com/transportation/cyberattacks-on-rise-in-trucking-mainville/1003155650/" target="_blank" rel="noopener">Cyberattacks on rise in trucking: Mainville</a>,&rdquo; Dec. 6, 2021 10&nbsp;Cybersecurity Guide, &ldquo;<a href="https://cybersecurityguide.org/industries/transportation/" target="_blank" rel="noopener">Cybersecurity in the transportation industry,</a>&rdquo; June 5, 2023

Caution ahead: Cyber risks in transportation and logistics

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