Directors and Officers Insurance
Organizations with either paid corporate directors or volunteer board of directors is strongly advised to protect their board of directors, from board chair to advisory member, with Directors and Officers (D&O) Liability Insurance.
Any number of unexpected events can put your board in a compromising position, such as financial losses, wrongful employee dismissal, misuse of confidential materials, and much more.
Why buy D&O liability insurance?
The purpose of a D&O liability insurance policy is to provide coverage for damages, costs and defense of legal actions, claims or proceedings. The coverage provides the following protection:
- Protection of personal assets, as well as spouse’s,
- Defense regardless of whether or not allegations are true
- Resources for defending the claim
- Reduction in reliance on the organization/club
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?
Commercial General Liability policies respond to law suits which result from a bodily injury or a property damage in which it is felt the organization bears some responsibility. Your policy covers this, as well as directors and others associated with hosting activities on behalf of the organization for these types of claims.
However, there are other things for which a director or officer may be sued for, potentially personally, which would not be included in the above. These law suits are typically the result of a wrongful act by a director and can be filed by another director, organization member/employee, the community the board serves, or a financial institution. D&O Liability coverage deals with these situations.
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.
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.
Under what statutes can a director or officer be liable under?
The following are Federal and Provincial Statutes a Director or Officer can be liable under:
- Income Tax Act
- Employment Standards Act
- Bankruptcy Act
- Pension Benefits Act
- Competitions Act
- Unemployment Insurance Act
- Discrimination Act, and more…
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.