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D and O Insurance

Directors and Officers Liability Insurance (often called D&O ) is liability insurance payable to the directors and officers of a company, or to the organization(s) itself. Most D&O policies will cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their capacity as directors and officers for the organization.

Such coverage can extend to defense costs arising out of regulatory investigations/trials as well; in fact, often civil and criminal actions are brought against directors/officers simultaneously. It has become closely associated with broader management liability insurance, which covers liabilities of the corporation as well as the personal liabilities for the directors and officers of the corporation.

Directors and Officers (D&O) liability insurance is purchased by companies to shield the personal assets of the Directors and Officers against claims from:

Competitors
Shareholders
Current or ex-employees
Corporate fraud
Statutory suits

The corporate landscape in Canada has often been characterized as one dominated by small and medium enterprises (SEM). According to Statistics Canada, there are 2.3 million SME’s in Canada who employ 2/3 Canadians and account for about 60% all new jobs created in the private sector. It is clear that SME’S are a vital part of Canada’s economy yet a majority are without any form of management protection otherwise know as Directors and Officers insurance.

In a survey released in September 2008 by Chubb Insurance, 63% of private companies did not have any type of Directors and Officers Liability. The survey went on to breakdown what types of lawsuits these companies faced.

29% from employees
5% from competitors
6% from vendors
16% from clients
44% from shareholders.

The average cost to Canadian companies was $ 338,699 taking into account judgements, settlements, fines and legal fees. In Ontario, bill 189 has made it easier for shareholders to sue companies along with their Directors and Officers.

Charities and Non Profit Organizations (NPO’s) are also a relatively untapped market in Canada when it comes to Directors and officers Insurance. There are more than 160,000 NPO’s in Canada. As important as charities are, recent scandals have tarnished their image and opened the door to increased litigation against the Board of Directors. Charities and their Boards are now regularly being held accountable for:

Misuse of funds
Conduct of fundraising activities
Wrongful dismissal
Sexual harassment
Insolvency

In today’s economic climate, NPO’s are faced with diminishing levels of financial support, stricter rules and regulations and an increasingly savvy public making sure their donations are used to the maximum and best use. As corporate D/O has reached its saturation point, insurers are looking at targeting NPO’s and SEM’s. Simpler applications, lower premiums and packaged policies are now surfacing throughout Canada.

New markets entering this class of business are willing to reduce rates substantially to secure accounts with Canada’s leading businesses and organizations. The D/O product is an excellent coverage to help fill the needs of these organizations and also presents an excellent opportunity to build closer relationships with business owners, CEO’s & CFO’s.

Market segmentation and the growth of niche insurers looks to continue upward as standard carriers continue to decline in numbers, tightening their focus on personal lines. Niche opportunities exist in both personal and commercial lines. Aligning with flexible niche insurers, brokers and MGA’s can offer a wide range and various combinations of services, and continue to create successful programs.

D and O Insurance

Directors and Officers – D and O insurance is a type of liability insurance that provides financial protection to directors and officers of a company in the event they are sued for alleged wrongful acts committed in their capacity as company executives. It is designed to safeguard individuals who serve on the board of directors or hold executive positions against personal liability for the decisions and actions they take while performing their duties.

D&O insurance typically covers the costs of legal defense, settlements, and judgments arising from lawsuits or claims brought against directors and officers. The policy can be purchased by the company to protect its directors and officers, or by the directors and officers themselves as a form of personal protection.

Here are some key points to understand about D&O insurance:

Coverage: D&O insurance covers claims related to a wide range of alleged wrongful acts, such as breach of fiduciary duty, negligence, mismanagement, errors in judgment, misleading statements, and employment practices violations. It typically excludes intentional illegal acts and fraud.
Insured Parties: The policy typically covers directors, officers, executives, and sometimes employees acting in managerial or supervisory roles. It may also extend coverage to the company itself for certain types of claims.
Insuring Agreements: D&O insurance policies consist of several insuring agreements or coverage sections, such as Side A, Side B, and Side C coverage.
- Side A: Protects individual directors and officers when the company cannot or is prohibited from indemnifying them.
- Side B: Reimburses the company when it indemnifies directors and officers in connection with a claim.
- Side C: Covers claims made specifically against the company for securities-related matters, such as shareholder lawsuits.
Claims Examples: D&O insurance can be triggered by various types of claims, including shareholder lawsuits, regulatory investigations, employment-related claims (e.g., discrimination, harassment), breach of fiduciary duty allegations, and merger and acquisition disputes.
Limitations and Exclusions: D&O insurance policies have limitations and exclusions that define the scope of coverage. Common exclusions include intentional illegal acts, fraud, bodily injury or property damage claims, and claims arising from prior litigation or known circumstances.
Importance and Availability: D&O insurance is crucial for attracting and retaining qualified directors and officers. It provides a safety net and helps mitigate personal financial risk, encouraging individuals to take on leadership roles. D&O insurance is typically purchased by public companies, private companies, nonprofits, and other organizations with boards of directors.

It’s important to note that specific policy terms, conditions, and coverages may vary depending on the insurance provider and the policy’s terms and conditions. It’s advisable to consult with an insurance professional or broker for detailed information tailored to your specific situation.

Insurance

Insurance is a way to protect against financial loss. It involves paying a premium to an insurance company in exchange for the promise of payment or reimbursement for certain losses or damages. Insurance can help individuals, businesses, and organizations manage risks and protect against unexpected events.

There are many different types of insurance available, including:

Health Insurance: This type of insurance helps cover the cost of medical expenses, such as doctor visits, hospital stays, and prescription drugs.
Life Insurance: Life insurance provides a lump-sum payment to the insured’s beneficiaries in the event of their death. It can help provide financial security for loved ones and cover expenses such as funeral costs and outstanding debts.
Auto Insurance: Auto insurance provides coverage for damage or injury caused by a car accident. It can also provide coverage for theft, vandalism, and other incidents.
Homeowners Insurance: This type of insurance helps protect homeowners against damage or loss to their property, as well as liability for injuries or damage caused to others on their property.
Renters Insurance: Renters insurance provides coverage for personal property and liability for renters.
Business Insurance: Business insurance provides coverage for various types of risks that businesses may face, such as liability, property damage, and employee injuries.

Insurance policies can vary widely in terms of coverage, exclusions, and premiums. It’s important to carefully review any insurance policy before purchasing it and to understand what is covered and what is not.

Insurance companies use various methods to assess risk and determine premiums, including actuarial science, statistical analysis, and underwriting. Factors such as age, health status, driving history, and location can all impact insurance premiums.

In conclusion, insurance is a way to protect against financial loss and manage risks. There are many different types of insurance available, including health insurance, life insurance, auto insurance, homeowners insurance, renters insurance, and business insurance.

It’s important to carefully review any insurance policy before purchasing it and to understand what is covered and what is not. Insurance companies use various methods to assess risk and determine premiums, and factors such as age, health status, driving history, and location can all impact insurance premiums.