Directors and Officers (D&O) Insurance – what you need to know
As a director of any company, you have a personal liability for every corporate action taken. However, most people mistakenly assume they have little to no personal liability related to the performance of the company or the decisions made by the board of directors. This is primarily because directors often assume that because companies purchase commercial general liability insurance or professional liability insurance that they are protected. Unfortunately, neither product provides any kind of coverage associated with actions or decisions taken by the board or by individual directors or officers related to the management, leadership, strategic direction, or representations made. Claims arising from these types of matters are specifically and almost exclusively designed to be covered by directors and officers. Any breach of the Canadian Business Corporations Act by these individuals means they can be held personally liable for their actions.
Considering the volatility of the global economy today, business executives are prone to different risks, including paying for mistakes made by their predecessors. Directors and Officers, or D&O, insurance is the best solution for business executives who want to cover themselves against such risks.
What is D&O insurance?
Directors and Officers Insurance provides coverage against claims arising from decisions made during their tenure. It covers officers and corporate directors whenever they face lawsuits for alleged or actual wrongdoing during the management of a company’s affairs. D&O insurance covers defence costs and expenses arising from awards and settlements of lawsuits.
At ALIGNED Insurance, we advise business executives on how they can protect themselves from potential lawsuits and clarify what is and is not covered by the company’s existing insurance policies. It’s vital that corporate directors and officers are fully and personally protected against any claims arising from allegations of wrongdoing.
Some of the claims filed against directors and officers include:
- Company underperformance
- Breach of fiduciary duty
- HR issues
- Lack of compliance with certain laws and regulations
- Making decisions beyond their jurisdiction or without consulting the necessary authority
- Poor corporate governance
- Cyber liability
Directors & officers insurance policies do not cover any criminal, intentional or illegal acts such as:
- Illegal remuneration
- Intentional non-compliance
- Bodily harm and property damage
- Personal profit
- Claims covered under other insurance policies
- Professional liability
How D&O insurance works
Like any other insurance policy, Directors & Officers insurance aims to safeguard the insured against possible risks. Here is a step-by-step guide to help you understand how this insurance works in practice.
Step 1: The manager or officer is sued by an internal or external claimant.
- A single or multiple directors or officers are sued for allegedly failing to fulfill their fiduciary duties. The lawsuit can arise from many things that fall under the director’s or officer’s purview and can include both actions taken and not taken.
Step 2: The director or officer is informed of the claim.
- The individual is served with a claim and asked to defend his/her actions.
Step 3: The directors and/or officers inform the company’s, leadership team, legal and/or risk management department.
Step 4: The insured informs their broker.
- The insured should speak to their broker about any/all allegations received. If the allegations satisfy the definition of claim the broker will make the insurer aware of the lawsuit and the insurers determines whether it falls under the Directors & Officers Insurance policy and clarifies what and exactly how much is covered.
Step 5: Insurer pays for defence costs and other losses.
- The insurer will cover or reimburse the costs incurred during the proceedings including defence costs, damages awarded and/or settlement agreements.
The entire process is subject to the terms and conditions provided under our Directors & Officers insurance policy. Our experts at ALIGNED Insurance will work with you to get you the best coverage tailored to your specific needs.
Why is D&O insurance important for your company?
At ALIGNED Insurance, we try to clear the misconception that D&O insurance is only meant for public companies. This policy covers all companies including private, public and non-profit organizations. The directors and officers of such organizations face a multitude of risks that could lead to costly lawsuits.
With ongoing competition between businesses, executives find themselves making difficult decisions. This exposes them to potential losses if they make a bad one.
Our insurance brokers function as your in-house claims team to ensure you receive practical advice whenever you are facing any claim. Our experts will advise you as to which areas of the claim are covered by the corporation’s existing policies and which fall under your D&O insurance policy.
Why should you choose Aligned Insurance for your D&O cover
When you need a reliable insurance service, ALIGNED Insurance is here for you. The D&O insurance policies we place are trusted by many Canadians because:
- We collaborate with risk professionals: Our team of experts works in conjunction with risk professionals to come up with a proprietary process aimed at minimizing the risks facing company directors and officers.
- We provide 24/7 electronic access to policy documents: When you want to access your policy documents online, we have the details secured in the cloud. We also archive all policies for future reference.
- We offer a fee for service model: our fee is based on the level of service we offer to your organization.
- We specialize in business insurance: Our team only deals with businesses and not any other types of clients. This means we are experts at what we do because we fully understand the business landscape. Our experts know all the possible risks that businesses can face.
- We operate even during the weekends: Clients can get in touch with us or book an appointment throughout the week except on Sundays. We only close during Canadian Statutory holidays and on Sundays, which guarantees we are available when you are.
Contact our brokers today
Every company that has an advisory committee, corporate board or management team should invest in D&O insurance. Individuals and companies shouldn’t have to face losses arising from defence costs and court settlements whenever decisions go wrong. This liability can be shifted to D&O insurance to safeguard business executives and companies balance sheets against various risk exposures.