Directors and Officers Liability Insurance

Directors and Officers Insurance

Individuals serving on boards of public, private or non-profit organizations can be personally pursued for the actions of the companies they serve.

Directors & Officers Liability Insurance can protect them against that risk.

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D&O Claims Examples

Coverage

Problem: After filing for bankruptcy, your non-profit organization fails to repay a loan from another organization for a charity event. 

Outcome: The charity sues your organization for breach of trust for failing to repay the funds. Your D&O Insurance covers the legal fees and monetary judgment, totalling $530,000.

Coverage

Problem: A member of the Board is found to have mismanagement of government-granted funds. They are named in a lawsuit for breach of fiduciary duties.

Outcome: Your Directors & Officers Insurance covers the legal expenses and settlement fees, totalling $120,000.

Coverage

Problem: A private investor heavily invests in your organization. However, it is later discovered that the Board misrepresented the organization’s financial situation to secure funding.

Outcome: The investor sues your company and directors for misrepresentation. Your D&O policy covers the legal fees and settlement, totalling $639,000.

Directors and Officers Insurance, Explained.

What is Directors and Officers Liability Insurance?

Directors and Officers Liability Insurance (D&O) covers costs associated with indemnification, losses or legal defence against an individual who serves as a director or officer for the board of a corporation, whether it’s for-profit or non-profit, public or private.

Directors and officers can be liable for alleged actions such as breach of common law duties, negligence in their duties, breach of their fiduciary responsibility to shareholders or violation of provincial or federal laws.

How much does Directors & Officers Liability Insurance cost?

The cost of Directors & Officers Insurance will vary based on risk factors such as organization type and industry.

The following factors are typically taken into consideration when determining the cost of your premium:

  • Organization Type and Size
  • Training and Experience
  • Number of Employees
  • Annual and Projected Revenue
  • Past Claims History
  • Quality Control Procedures

What does it cover?

Directors & Officers Insurance, also known as Management Liability Insurance, provides financial protection to the directors and officers of a company should they be personally named in a claim or lawsuit.

D&O Insurance typically includes coverage for: 

  • Breach of legal or fiduciary duties; 
  • Decisions that result in adverse financial consequences for shareholders; 
  • Allegations of misrepresentation and negligent acts; 
  • Wrongful dismissals and employee discrimination claims;
  • Misleading statements, reporting issues, or inaccurate disclosure; and, 
  • Failure to adhere to provincial and federal laws and regulations.

It also provides financial coverage for legal expenses incurred defending these members of your business.

How is this insurance policy structured?

A D&O Insurance policy is structured based on which combination of insuring clauses (i.e., the scope of coverage) make up the policy. A standard policy typically includes two clauses – A and B – and sometimes C. 

  • Side A – Directors & Officers Liability: Protection for director’s and officer’s personal assets if the company cannot fund indemnification.
  • Side B – Company Reimbursement: Reimbursement for legal expenses incurred when a company defends its directors or officers.
  • Side C – Entities Security Coverage: Extended coverage for public companies, for securities claims only.

Public companies commonly purchase ABC policies; whereas, non-profit and private companies are more likely to buy an AB policy. 

Organizations with large limits over $30M are more likely to require an ‘extra-layer’ policy structure, whereby a group of insurers shares the risk.

What is not covered by D&O Insurance?

Directors & Officers Insurance does not typically include coverage for:

  • Bodily injury;
  • Property damage;
  • Criminal or fraudulent acts;
  • Intentional non-compliant acts; or,
  • Fines and penalties.

Does D&O Insurance protect executives from multi-national corporations?

Multi-national corporations need an international insurance solution to protect their executives in global markets. A multi-national solution typically includes a global master policy supplemented by locally admitted policies to provide comprehensive coverage.

Frequently Asked Questions

Is Directors and Officers (D&O) liability insurance the same as professional liability insurance?

D&O liability insurance is a type of professional liability insurance that is specifically designed to protect the liability of directors and officers and also the liability of the corporation to indemnify its directors and officers for expenses incurred from their alleged acts of harm or negligence.

Does my non-profit need Directors and Officers (D&O) liability insurance?

Yes, D&O insurance protects the board of directors of nonprofits by covering defense costs, settlements, judgments arising from lawsuits and wrongful allegations. Nonprofit board members are not fully exempt from liability just by virtue of being volunteers.

Does D&O insurance cover former directors?

Yes, D&O insurance policies usually protect former and present directors and officers. As long as the company continues to purchase D&O insurance, former directors and officers will be covered against future lawsuits that relate to their past board service.

Can a sole trader or partnership have Directors and Officers Insurance?

Directors and Officers Insurance usually does not apply to sole traders or partnerships because they don’t employ the executive level staff that a Directors and Officers Insurance policy is designed to cover. However, any corporate business whose structure includes executive level staff should consider getting D&O Insurance.

Other business insurance coverage options to consider:

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