Directors and Officers Disclosure Risk

Directors and Officers Disclosure

A recent article by Anthony Alexander of McCarthy Tetrault LLP serves as a good reminder to all directors and officers of publicly traded companies about the importance of directors and officers disclosure being continuous, timely and accurate.

About Directors and Officers Insurance

Directors and officers (D&O) insurance is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer. D&O insurance can be written to cover the directors and officers of publicly traded companies, privately held firms, not-for-profit organizations, and educational institutions.
In effect, the policies function as “management errors and omissions liability insurance,” covering claims resulting from managerial decisions that have adverse financial consequences.

D&O insurance policies can contain “shrinking limits” provisions, meaning that defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This approach contrasts with commercial general liability (CGL) policies, in which defense are typically covered in addition to policy limits. However, some D&O insurance products do provide defence costs in addition to the limit on an unlimited basis or could provide a special sublimit that is “in addition to the policy limit” that is specifically for defence costs.

Other distinctive features of D&O insurance policies are that they:

  1. Are written on a claims-made basis
  2. Usually contain no explicit duty to defend the insureds (when covering for-profit businesses)
  3. Cover monetary damages but exclude bodily injury (BI) and property damage (PD)

What Are Some Examples Of Canadian Directors and Officers Insurance Claims?

Real Canadian Directors and Officers Insurance Company Claim:

  • An employee of a small, Canadian private business convinced the board of directors that he was qualified to step into the role of president of the company and he was appointed. Under his leadership, the company’s financial position substantially weakened. On behalf of the company, a shareholder sued the board of directors alleging that it used poor judgment and did not act in the best interest of the company when it appointed the new President. The case eventually settled for $1,500,000 million plus legal fees of $300,000 resulted in a $1,800,000 loss paid by the insurance company.

An ALIGNED Advocate can provide expert guidance about directors and officers disclosure risk and corporate governance for your board. Talk to one of our advocates today about how we can help you secure the best products, services and insurance solutions for your business.

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