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What is Directors & Officers Insurance?
Directors’ and Officers’ Insurance, also known as D&O insurance or professional liability, is designed to protect organizations from Derivative Lawsuits, Non-Derivative Lawsuits, and associated legal expenses. Coverage is available for both for profit and not-for profit organizations. Directors and Officers have a personal stake in ensuring that the corporation they serve adheres and operated within the law, regulations and statutes that govern corporate behaviour. Failure to provide adequate corporate stewardship can lead to personal liability exposures for the directors and officers. Forming a limited liability corporation does not grant immunity to directors and officers from certain liability exposures. In Canada, there are over 150 statutes that contain specific liability provisions for directors and officers if the corporation, under their direction, contravenes these statutes. In Canada and the USA, corporate laws and statutes have built-in penalties and strict liability provisions for directors and officers. These laws were created specifically to pierce the corporate veil, to provide accountability to the directors’ and officers’ of the organization, and incentive for fair corporate governance.
Finding the right D&O insurance coverage requires the assistance of a broker with knowledge and experience in this class of insurance.
At AC&D Insurance we employ professional brokers that have extensive knowledge in the field of D&O insurance. The limits and types of D&O insurance needed for each type of business are different and we will work with you to find the right coverage package.
What does D&O Insurance Cover?
The main components of standard D&O Insurance policies are:
- Side A
- Coverage for defense expense and payments that arise from claims against Directors and/or Officers when the costs cannot be indemnified by the company.
- Side B
- Company reimbursement coverage. This coverage reimburses the company for the costs of paying claims made against the Directors and/or Officers.
- Side C
- Provides coverage for claims when the company itself is a defendant in the claim.
- For publicly traded companies, it typically only provides cover for securities related claims. However, in some cases additional coverage is available.
Additional D&O Insurance Considerations include:
- Public Policy Exclusions
- Conduct (Fraud & Dishonesty)
- Fines and Penalties
- Underwriting Exclusions
- Major Shareholder Exclusion
- Insured vs. Insured Exclusion
- Pending and Prior Litigation Exclusion
- Securities Claims Exclusions
- Employment Practices Liability
- Contractual Liability
- Additional Clauses
- Cancellation of Policy. Restricts the ability of the insurer to cancel the policy mid-term
- Hammer Clause
- Entity Security Coverage
- Priority of Payments
- Spousal Liability
- Extended Reporting Period
- Pollution Extension
- Employees as Co-Defendent Coverage
- Non-Rescindable Side A Coverage
- Defense Costs Allocation
Still undecided about whether to purchase D&O Insurance?
- FACT: The average indemnity payment on closed claims in Canada is $564,000
- FACT: The average defence costs paid on closed claims in Canada is: $602,000*
*figures from 2011 survey.
Why do I need D&O Insurance?
Directors and officers of every organization have a fiduciary duty to their stakeholders to prevent the erosion of corporate assets; hence, it is in their best interest to transfer the risk of exposure of indemnification to an insurance company that specializes in these matters.
How much does D&O Insurance cost?
The cost of D&O insurance differs based on the size/scope of your operation and limits of coverage selected. D&O liability policies can start as low as $350 for non-profit entities. Contact us today to arrange a no-obligation review of your D&O Insurance needs from one of our expert brokers.