Why Directors and Officers (D&O) Insurance in Canada Is Vital in 2026

Directors and officers are held to higher legal and fiduciary standards, especially when a business struggles financially or enters insolvency. In 2026, with rising bankruptcies and regulatory scrutiny in Canada, personal exposure for board members has never been higher.

Business insolvencies in Canada are increasing, and that directly increases legal risk for directors and officers.

According to data from the Office of the Superintendent of Bankruptcy, the total number of insolvencies in Canada increased by 20% in January 2025 compared to the previous month. Further, business insolvencies in 2025 were up by 11.7% versus 2024.

When an organization fails, creditors, employees, regulators, and shareholders often look to leadership for accountability. That can put business leaders’ personal assets at risk. 

Let’s unpack what D&O insurance covers, its limitations, coverage limits, and deductibles, and why it may be necessary for your small business.

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Who Needs Directors and Officers (D&O) Insurance?

D&O insurance is essential for any Canadian organization that has:

• A board of directors
• Corporate officers or senior leadership
• Owners involved in management decisions
• Investors or shareholders
• Regulatory or fiduciary obligations
  

That includes:

• Small to mid-sized corporations
• Non-profits and charities
• Private companies
• Publicly traded organizations
  

If decisions made by leadership can impact employees, shareholders, creditors, or regulators – D&O insurance is necessary.

What Does Directors and Officers (D&O) Insurance Cover?

Also known as management liability insurance, D&O insurance is essential for protecting for-profit small to midsized businesses with owners, directors, officers, or a board of directors.

Unlike errors & omissions (E&O) insurance, which focuses on customer-related professional mistakes, D&O insurance is specifically designed to defend leadership decisions.

It protects the personal finances of directors, officers, and executives if they are sued for alleged wrongful acts committed while managing an organization.

It covers:

• Legal defence costs
• Settlements and damages
• Claims alleging errors, omissions, or mismanagement
• Allegations or claims of breaching legal or fiduciary duties
• Misrepresentation and negligence
• Decisions that negatively affect an organization’s shareholders
• Making misleading statements
• Wrongful dismissal or discrimination accusations from current and former employees
• Failing to comply with laws and regulations
  

Importantly, D&O insurance protects individuals and not just the organization. Policies are written on an annual, renewable basis and are designed to complement strong internal governance practices.

3 Types of Directors and Officers (D&O) Insurance Coverage

There are three types of clauses on which a D&O insurance policy is structured: 

• Side A coverage provides financial protection for directors and officers to cover their defence and potential legal liabilities if the company cannot or will not cover their legal defence while the policy is active and in force.
  
  For example, if a company declares bankruptcy, it may not be able to provide its board of directors with resources to mount a defence in the face of alleged wrongdoing.

• Side B coverage reimburses the organization for its legal expenses after paying to defend its directors and officers from a claim or lawsuit during the policy’s period, even for alleged wrongful acts made by an individual before the policy’s period.

• Side C coverage is designed to cover a publicly traded company’s securities-related claims during the policy’s period.

What Risks Do Directors and Officers Face During a Business Bankruptcy?

Directors and officers of an organization that’s entered into a creditors agreement or bankruptcy may face lawsuits related to:

• Creditor claims alleging a breach of legal or fiduciary duties that lead to insolvency.

• Lawsuits: If the organization or company is publicly held, shareholders of that firm could launch legal action against a board of directors for failing to protect their interests or for making decisions that led to insolvency.

• Regulatory penalties: Governments may issue fines or other penalties against a board if there was a violation of securities laws.

Without D&O insurance, directors and officers may have to fund their own legal defence.

How Much Directors and Officers (D&O) Insurance Coverage Do You Need?

There is no one-size-fits-all limit. What coverage limit your D&O insurance policy should have depends on several factors, such as:

• Corporate governance structure
• Company size and balance sheet
• Operating locations
• Market capitalization
• Share price volatility
• Risk tolerance of leadership

A Zensurance broker can help guide you on how much coverage to purchase based on these factors, but the amount would be based on your tolerance for accepting risk.

How Do Deductibles Apply to D&O Insurance Claims?

Deductibles typically apply to any business insurance policy. For D&O insurance, they vary depending on the coverage type:

• Side A: Typically no deductible
• Side B and Side C: Deductibles usually apply
  

Higher deductibles generally lower premiums, but should reflect what your organization can realistically afford in a claim.

What Does D&O Insurance Not Cover?

D&O insurance does not cover the following:

• Third-party bodily injury or property damage claims
• Civic or regulatory fines or financial penalties
• Intentional illegal acts, fraud, or criminal activity
• Breach of fiduciary duty related to pensions and employee benefit plans
• Pollution claims
• Lawsuits between directors, officers, or managers within a company

What Is a Claims-Made D&O Insurance Policy?

Most D&O policies are claims-made and not occurrence-based. That means:

• The claim must be made during the policy period
• The incident must occur after the retroactive date
  

Claims arising after a policy expires are not covered unless run-off coverage is in place.

What Is D&O Run-Off (Tail) Insurance?

Also called extended reporting period coverage or tail coverage, run-off coverage for a D&O insurance policy is an extension of coverage to cover claims after your existing policy is cancelled or expires. It covers future claims arising from past acts.

For example, if you terminate an employee during the policy period, but your D&O policy is not renewed, and the employee sues you for wrongful termination after the policy lapses, D&O insurance would not cover the claim.

A D&O run-off or tail coverage insurance endorsement would cover it. It’s best suited for D&O insurance policies since claims-made policies do not cover future claims after a policy expires. The endorsement can be tailored to cover a specific amount of time, such as one or two years or more, if required.

Get Comprehensive D&O Insurance for Your Organization Online Now

Though D&O insurance can be intricate and complex, our knowledgeable, experienced insurance brokers know how to explain it in simple language and ensure your small business and its board of directors are adequately protected.

Complete our online application for a free quote in under five minutes. 

With more than 50 Canadian insurers in our partner network, we can quickly find the low-cost coverage your business needs, customize it to suit your risks, and protect your future.

– Updated January 21, 2026.