Is liability insurance for financial institutions in Canada on your to do list?
Financial institutions face a complex set of risks and issues in this day and age. From cyber crime and ever-expanding regulations to consumer protests and shocks to the global economy, financiers need to be prepared for all kinds of unpredictable issues.
When issues arise, clients often have standing to sue for damages against both firms and the firms’ officers and directors.
When things do go wrong, clients often seek restitution in the courts which is liability insurance for financial institutions is so important. Whether the institution is a bank, fund manager, mortgage lender, credit card company or even a financial technology firm, Fintech or Insuretech firm, it is often possible for plaintiffs to allege that their losses are the result of actions taken by those organizations.
To guard against certain types of liability, a financial institution can seek financial liability insurance coverage from insurers like April and others that covers a wide variety of risks and claims, including:
- Professional indemnity,
- Management liability,
- Cyber liability,
- Commercial crime / Financial Institution bonds.
What liability insurance coverage for financial institutions protects against
In effect, financial liability insurance coverage protects against the same basic problems, even as it takes different and specialized forms. Where clients of the firm have suffered losses or perceive that they have lost money, they often have standing to sue for damages against both firms and the firms’ officers and directors.
Financial liability insurance coverage covers the potential costs of a lawsuit against a corporation or officers.
Commonly, these result from events such as a failure to comply with regulations or legislation, insufficient disclosure, prospectus mistakes or misstatements, or conflicts of interest.
It’s important to understand that such insurance can never insulate firms or directors from the consequences of illegal actions and crimes. What can be covered is the the cost of mounting a defense for both companies and staff, and the financial costs that come about as a result.
ICYMI…here’s how the Canadian liability insurance market is evolving…
For Canadian firms, protection against these kinds of issues is becoming an increasingly large concern.
“Over the last 20 years, we’ve seen a steady increase in claims against corporate directors and officers (D&Os) in Canada,” writes Catherine Tyndale, senior counsel at the the global law firm Clyde and Co. LLP for the legal blog Lexology. “Because Canadian courts apply a relatively low threshold to the certification of securities class actions and are generally reluctant to dismiss them at an early stage, there has also been a trend toward higher settlements in an environment where plaintiffs are more confident they can ‘hang in’ and bargain for more.”
Additionally, Tyndale points out, regulators in a number of provinces are now pursuing investigations more aggressively, especially in Alberta, Ontario and Quebec.
Combined with new whistleblower programs and the growth of litigation funded by third-party sources, it’s no surprise that Canadian firms are seeing an increasing need for this kind of coverage. In turn, this will continue to drive forward the demand for financial liability insurance solutions.