D&O Claims – A Real Canadian Example
Value. It can be an intangible promise until such time as it is delivered upon. According to The Canadian Oxford Dictionary, value can be defined in 11 distinct ways. The dictionary’s third definition is perhaps the most telling, stating that value is “the amount of a commodity, medium of exchange etc., considered to be the equivalent of something (the insurance company paid us full value for our lost property).” 1
Making a claim is when many business owners gain an appreciation for the real value of their insurance policies. Directors and Officers (D&O) insurance is an area that can provide an extra layer of security for non-profits and corporations alike in the event of a D&O claims situation.
Directors and Officers Claims – Loose Lips Can Sink Ships
Chubb Insurance Company of Canada provides insurance solutions for directors and officers of privately held Canadian companies. Understanding that the value of a policy comes to light when a D&O claims event happens, Chubb provides the following insights into a breach of contract situation for a real Canadian company. This company has 650 employees and revenues of $115M at the time of the event.
Chubb shares the following directors and officers claims example, “Smith, Jones and White, as a partnership, sought to purchase two properties owned by ABC Company. The properties were valued at between $250M and $300M. Negotiations were entered into and a due diligence investigation was conducted during which Smith, Jones & White obtained confidential information. White, one of the partners, elected to drop out of the partnership but continued to receive confidential information from ABC Company in hopes that he would be enticed to rejoin the partnership. Smith & Jones made an offer to ABC Company that was subsequently rejected.
Two weeks after the offer expired, White successfully acquired a 50% interest in the properties. Smith & Jones not only sued White, but also sued ABC Company and its CEO alleging breach of contract and that ABC Company and its CEO knowingly assisted White in breaching his fiduciary duties; failed to negotiate in good faith; and, knowingly provided confidential information to White contrary to the term sheet. Chubb is providing coverage to ABC’s CEO and has incurred costs of $500,000 for this breach of contract claim.” 2
Directors and Officers Claims For Wrongful Acts
Unlike a commercial general liability insurance (CGL) policy that provides coverage for claims arising from property damage and bodily injury, directors and officers liability insurance specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect or breach of duty.
Protect Your MVPs with D&O Insurance
Regardless of your company’s size, the legal cost to defend a director can be substantial, as can be the potential penalties that can be personally incurred. Due to the personal liability risk (not covered under a personal insurance policy), protecting your board with a well-structured directors and officers liability insurance is critical.
An ALIGNED Insurance Advocate can provide information about products that can protect your leaders. Directors and officers claims situations happen. Talk to us about insurance that delivers real value.
Sources: 1 The Canadian Oxford Dictionary 2 Chubb’s D&O Liability Insurance – Providing Certainty for Canadian Private Companies