Protecting Directors and Officers: The Role of D&O Insurance

As an officer or director at your organization, you face numerous employment-related exposures and risks. Directors are increasingly at risk for claims and elevated settlement costs. Defending a director incurs substantial legal expenses, and the potential penalties can also affect them personally.

Claims can come from shareholders, customers, government, or employees. There are many statutes in Canada that can hold owners, directors, and officers personally liable.

Protecting boardroom talent is a challenge because Personal Insurance policies do not cover this risk. A Directors and Officers Liability (D&O) insurance policy is a critical component of a comprehensive risk financing strategy.

How D&O Fills Coverage Gaps

A Commercial General Liability policy covers claims for property damage and bodily injury. In contrast, a D&O policy covers “wrongful acts.” These acts include actual or alleged errors, omissions, misleading statements, neglect, or breaches of duty. A D&O policy covers defense costs and indemnity for the entity named in the policy. This may include:

• Coverage for individual directors and officers.
• Reimbursement to the organization for a contractual obligation to indemnify directors and officers serving on the board.
• Protection for the organization or entity itself.

Corporate bylaws typically include indemnification provisions. Small to mid-size private companies and non-profit organizations often lack the funds to support indemnity provisions. This makes these bylaws ineffective. A D&O policy provides an extra layer of security if there is a covered loss.

Expanded Coverage Options

Many D&O policies can be tailored to include additional forms of protection, such as:

• Employment Practices Liability (EPL) Coverage: This provides coverage for claims related to wrongful acts in employment, such as discrimination, harassment, or wrongful termination. While EPL endorsements broaden coverage under a D&O policy, they often do not include a duty-to-defend clause. They are also subject to significant deductibles and may not provide a separate limit of liability. If the D&O limit is reduced or exhausted by an employment practices claim, the personal assets of directors or officers could be at risk.
• Fiduciary Liability and Crime Coverage: Fiduciary liability protects against claims arising from breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA). Crime coverage protects organizations from financial losses due to fraud, theft, or other criminal acts committed by employees or third parties. These coverages can often be added to a D&O policy to provide a comprehensive risk management solution.
• Entity coverage.
• Payment priority for insured persons.
• Severability of the insured and the application.
• Coverage over time, which applies to past, present, and future directors and officers.
• Pay on behalf clause.
• Duty to defend clause.

Considerations for Non-profits

Non-profit organizations frequently seek ways to afford D&O insurance. To minimize premiums, they often select the most critical policy provisions.

For organizations concerned about lump-sum premiums, premium financing may be an option. Additionally, some non-profits defray costs by charging board members a portion of the policy premium.

We’re Here to Help

Whether you’re a non-profit, privately held, or public company, you and your organization can benefit from a D&O policy. Since there is no “standard” policy, consulting with a professional agent is invaluable when purchasing coverage tailored to your specific needs.

Call us today at 705.949.6555 to learn more about protecting yourself and your company against Directors and Officers Liability. We will be able to provide you with comprehensive solutions, including Employment Practices Liability, Fiduciary, and Crime Coverage.