Directors & Officers Liability

What is Directors & Officers Liability Insurance?

Often referred to as "D&O", Directors & Officers Liability insurance coverage provides financial protection for corporate directors and officers against claims arising from the decisions and actions taken within the scope of their regular duties.  Claims can be brought by shareholders, investors, employees, clients or other third parties for alleged financial loss due to company mismanagement.

Directors and Officers have a duty to exercise due diligence in overseeing the activities of the organization that they serve.  They are required to act in good faith and in the best interest of the organization. Directors have three basic duties:

1. Duty of Diligence (Duty of Care): Act reasonably, in good faith, in the organization’s best interest
2. Duty of Loyalty: Place the interest of the organization before your own
3. Duty of Obedience: Act within the scope of the organization, within applicable rules and laws

Who requires Directors & Officers Liability Insurance?

• Company managers who are making decisions and taking action within the scope of their regular duties
• Company directors and officers
• Stock companies
• Non-Profit Organizations 

What are the potential exposures for Directors & Officers?

Directors may be liable for:

• Failure to act as stated under a statute. For example, if a statute requires directors to file a report or maintain certain records, and these reports and records are not maintained, then the director may be liable for an offence under that statute
• Non-compliance of the organization with a statute. For example, directors may be liable for mismanagement, financial losses, wrongful dismissal, employee discrimination or failure to remediate environmental damage
• Financial loss, breach in securities laws, perceived mismanagement of the company affairs, latent conflicts of interest, or a misstatement about future earnings

It is also important to note that:

• Directors can be held personally liable
• Ignorance is not a defense
• Resignation may not be a defense
• Board indemnity may not be enough
• Directors may be liable for non-performance

What coverages are provided with Directors & Officers Liability Insurance policy?

• Defence costs
• Costs under the court decision or amicable agreement
• Damage to reputation, regulatory crisis response costs, emergency costs, special excess limit for non-executive directors and others, subject to the type of extensions applied 

Consult a lawyer for more information on Directors & Officers Liability. For a comprehensive review of legal liability for Directors & Officers Liability of not-for-profits, visit Industry Canada’s “Primer for directors of not-for-profit corporations” at:

http://strategis.ic.gc.ca/epic/internet/incilp-pdci.nsf/en/cl00689e.html

To help protect your business in Alberta, British Columbia, Nova Scotia and New Brunswick, Pirbright Professions Inc. can provide small businesses with Directors & Officers Liability insurance as a standalone policy.  Alternatively, it can be purchased together with other lines of coverage such as Professional Liability or Errors & Omissions coverage, Commercial General Liability, Office Property Package policies, and Cyber Liability Insurance coverage.  All companies have potential exposures in all of these areas.

Should you have any queries or require any further information, please contact us.