Directors and Officers Insurance

Do you serve on a board of directors? If so, have you ensured that Directors and Officers Insurance is in place to protect you?

Why Worry About Directors and Officers Insurance?

As a director or officer you have a fiduciary duty to the members of the organization. Fiduciary duty basically means that you have power that can affect other people’s interests and you must use your skills and knowledge appropriately. As a board member you can be held personally responsible for a wide variety of issues affecting people involved with the organization.

You may be held personally liable in cases involving conflict of interest; ultra vires (the board acting outside its authority and misusing funds); environmental damage; wrongful dismissal; government remittances; unpaid wages (including vacation pay); and more.

This is true even if you did not vote in favour of the action or actions that caused the problem!

Your personal responsibility applies to both Not For Profit and For Profit organizations. Even the Incorporation of the organization does not protect a Director or Office from potential personal liability. Incorporating does limit the overall liability exposure of the whole organization.

So it is wise to take steps to protect yourself financially. A Directors and Officers Insurance policy, owned by your organization, does just that.

What is Directors and Officers (D&O) Insurance?

Generally speaking, D&O policies protect Directors and Officers when they act honestly and in good faith while attempting to act in the best interests of their organization.

A Directors and Officers Insurance policy protects both the Directors and Officers personally, and the organization. The board members are protected financially in the event that they are sued and found responsible for certain actions (or inaction) of the organization. The organization is protected in the event that it is ordered to indemnify its board members.

Like any Canadian Insurance policy, there are limitations and exclusions. The most common D&O insurance exclusions include:

• Statutory Fines
• Libel and Slander – this could be covered under a personally Umbrella Liability Insurance
• Personal Injury Bodily Injury - this is covered under a General Liability Insurance policy (your organization needs this too!)
• Property Damage - covered under a different policy (i.e. property)
• Dishonest Acts - The reason for this is obvious – insuring an intentional dishonest act would be costly
• Criminal Acts - The reason for this is also obvious
• Punitive Damages - some policies will cover this, but punitive damages are often related to criminal or dishonest acts
• Wrongful Dismissal - this is covered by some polices. Look for Employment Practices Liability Insurance
• Nuclear Energy Losses - a common exclusion from many insurance policies
• Environmental Losses - some D&O policies will cover this. Any environmental coverage can be costly
• Failure to maintain proper liability coverage’s - make sure the organization has enough liability coverage!

If you are considering joining a board of directors, or serving on one now, take some time to ensure there is a policy in force to protect you. If there is a policy, when was the last time it was reviewed to ensure that it is up to date?

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