Insights 101 | D&O insurance aka Directors and Officers insurance explained
Board members need protection too. This is why it is important to understand specifically what directors and officers insurance can do for your organization. If you’ve been searching online for information about “D&O insurance Canada” you’ve landed on the right page.
Unlike commercial general liability insurance (CGL) which only covers property damage and bodily injury, directors and officers insurance specifically covers a “wrongful act”. Examples of a wrongful act can be an actual or alleged error, omission, misleading statement, neglect or breach of duty.
In other words, directors and officers (D&O) insurance is a type of liability insurance. It covers your directors and officers for claims made against them while they serve 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.
So, how exactly does directors insurance work?
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 sub-limit 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:
- Are written on a claims-made basis
- Usually contain no explicit duty to defend the insureds (when covering for-profit businesses)
- Cover monetary damages but exclude bodily injury (BI) and property damage (PD)
Claims 101 | A real Canadian D&O insurance claim
It’s important to know that your insurance will respond when a worst-case scenario happens. Here’s a recent example of a real Canadian directors and officers claim situation…
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. The employee was appointed to the position.
Under the new president’s leadership, the company’s financial position substantially weakened. On behalf of the company, a shareholder sued the board of directors. The shareholder alleged that the board used poor judgment and did not act in the best interest of the company when appointing 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.
We work with some of the largest insurance companies in Canada to ensure that our clients risks are aligned with the best possible coverage. ALIGNED insurance brokers of Canada exclusively focus on delivering commercial insurance products to organizations of all sizes across the country.
Whether your organization is publicly traded or a small private company D&O insurance should be considered to help protect the management / leadership team.
Most importantly, we are here to support clients when claims happen. Our clients can report insurance claims 24 hours a day, 365 days a year to a real person using our ALIGNED Insurance Claims Reporting Centre.
What sets ALIGNED insurance brokers of Canada apart…
We are proud to be 100% Canadian owned. We believe that aligning insurance experts to business needs is one of the most important things an insurance broker can do to support their clients.
And we’re also proud to be a premiere insurance brokerage that currently serves more than 1,600 clients across this country.
We take pride in delivering a different insurance experience to Canadian business. Our focus on providing important insurance insights right here on our website, through our e-newsletter ALIGNMENT Matters and our social media channels is a foundational cornerstone of our business.
Last but certainly not least, we proudly support businesses across Canada. In addition to our national operations centre in Cambridge, Ontario, we support commercial insurance clients through Toronto, Ontario; Calgary, Alberta and Vancouver, BC.
Contact us today. Here’s a link to our locations across Canada.
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