I have been told that liability insurance for clubs covers directors. Why then is Director’s & Officer’s coverage discussed so much and sold separately? What is this all about?

Commercial General Liability policies respond to law suits which result from a bodily injury or a property damage in which it is felt the club bears some responsibility. Your policy covers this, as well as directors and others associated with hosting club activities for these types of claims. However, there are other things for which a director or officer may be sued which have nothing to do with a bodily injury or a property damage. Typically, these law suits are the result of a wrongful act by a director and are filed by another director, club member or a financial institution. Directors and Officers Liability coverage deals with these situations.

What are some examples of claims?

Negligence of account procedures and mishandling of funds; Personal benefit by a Director; Jeopardizing tax-exempt status; Interest that should have been collected and distributed; Failure to adopt and implement appropriate safety and operational procedures at a facility causing the facility to be shut down by regulators.

Our club is interested in Directors and Officers Liability insurance to protect our directors. This coverage is an option on the insurance program and we are wondering about the need and the expense.

The protection provided to directors under most Society Acts has weakened over the past few years as cases are tested in the courts. We are able to arrange Directors and Officers Liability insurance for your club. Often directors are reluctant to vote for the expense of buying this coverage for the board because they feel it may be considered somewhat selfish. The members of a club on the other hand should support this purchase and protect the people who freely offer their time to the running of club affairs.

Directors & Officers Liability Insurance Ontario

Directors and officers in Ontario play a vital role in business decisions that affect the interests of employees, stakeholders and clients. They have a duty to exercise due diligence in oversight of the management of the organization/community that they serve. Corporate directors are required to act in good faith and a responsibility to act in the best interest of the organization.

If you sit on a board of directors, whether a not-for-profit local charity, a church, or a for profit corporate entity, the decisions you make will impact certain stakeholders such as volunteers, employees, customers and clients, competitors, shareholders and government.

Ultimately a board is responsible for oversight on leadership and succession planning, growth, risk management and strategy decisions providing a governing body to steer the ship. Corporate governance has long focused on enhancing shareholder value making it imperative for the board to look forward to guide the course for growth and results while being mindful of risks.

Why Directors and Officers (D&O) Liability Insurance?

Mistakes happen. For board members, errors in judgment may find them legally responsible and personally liable.

Any number of unexpected events can put your board in a compromising position, such as financial losses, misleading statements (or lack of statements), wrongful employee dismissal, misuse of confidential materials, and much more. Because directors and officers must make decisions that are in the best interest of and protect the organization, it does not mean that those decisions are regarded as correct in the eyes of the stakeholders that may be impacted.

If a claim is made against a board of directors or an individual board member, in the absence of a D&O liability policy, the personal assets of the board members can be at risk. It is important to note, a D&O liability policy is not protection against reckless or illegal acts, rather it is meant to mitigate against legal costs for corporate directors diligently acting in good faith.

For this reason it is imperative that when you sit on a board of directors there is an insurance policy that protects your personal assets and that can cover the legal expenses that may be incurred when claims are made.

From local volunteer directors on a minor hockey league board in rural Ontario to start up advisory boards in Ottawa’s Tech hub, Kanata North, and directors responsible for decision making on boards for publicly traded companies across Canada, we’ve got you covered. Connect with your local broker.

Three Duties of Directors:

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

Types of Boards we work with:

Condominium Boards
Church and Private School boards
Corporate/Publicly Traded Company Board
Non-Profit, Volunteer and Community Boards
Private Company Boards

Directors and Officers Insurance Solutions

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FAQ

How does a D&O policy work?

In its simplest form, there are three agreements of insurance under a D&O liability policy; coverage for the corporation or organization if named in a lawsuit, coverage for individual directors and officers when the corporate bylaws agrees to indemnify the directors and officers in the event of a lawsuit and coverage for the individual directors and officers when there is no indemnification available from the corporation. Deductible may apply and limits may be inclusive of legal expense, or legal expense is over and above the policy limit.

Coverage is written on a “Claims Made” basis, which means that before the policy term is renewed, any claim that is potentially happening that became known in the policy period that is going to be replaced with the next renewal needs to be reported. Best rule of thumb; if you are aware of something that may give rise to a claim against the corporation or directors and officers – contact your insurance professional to discuss the next best step.

Why buy D&O liability insurance?

The purpose of a D&O liability insurance policy is to pay on behalf of the corporation/organization and the directors and officers who are the insureds under the policy for the wrongful acts it/they are held responsible for and where the claim is unfounded, to pay to defend them. The coverage provides the following protection:

Protection of personal assets of a director or officer, as well as their spouse
Defense regardless of whether or not allegations are true
Damages awarded if negligent

Bylaws contain indemnification provisions to protect Directors and Officers. Despite these provisions, circumstances could exist where indemnification may not occur (the organization is financially impaired, becomes insolvent or is not capable of providing funds for defense or resulting damages).

Why is D&O insurance such a hot topic, and sold separately of an organization's liability coverage?

If a Commercial General Liability policy is designed to respond to claims for bodily injury or property damage suffered by a third party as a result of negligence, a Directors and Officers Liability policy is designed to respond to the financial losses suffered that may be caused by a wrongful act. Simply having one liability insurance policy may not be enough for your overall exposure.

What are my legal responsibilities under the law?

Under the law, Directors and Officers must (1) act in good faith and in the best interest of the society (2) act with a duty of care as a reasonably prudent person (3) perform duties in accordance with applicable statutes and your own charter.

What is a wrongful act?

It is an actual or alleged negligent act, error, omission, misstatement, misleading statement, neglect or breach of duty by the Directors and Officers, individually or collectively, in the discharge of their legal duties solely in their capacity as Directors and Officers of the organization.