Jeff Goldstein: Personal, Business, and Life Insurance Broker, Toronto, Ontario

Personal Liability Insurance for Corporate Officers and Directors

As an officer or director of a corporation you are potentially exposing yourself to significant personal risk, as Common Law and many statues or regulations impose personal liabilities on Directors in these high-level positions. Company Directors are responsible for considering the interests of an increasingly broad group of stakeholders within a corporation, including shareholders, employees, customers, and governmental agencies (to name a few). This exposes these individuals and their assets to significant risk. If you are in such a position, your personal insurance broker should include the purchase of Directors' and Officers' Liability Insurance (popularly known as "D&O" insurance), and other steps to minimize your exposure, as part of your risk-management strategy.

Common Scenarios

The most common allegations which a company Director may have to defend against include things such as the breach of fiduciary duties like authorizing excessive spending, unauthorized company borrowing, or the failure to properly supervise the activity of subordinates in this regard. Non-financial allegations may include things such as acting beyond the scope of authority or providing inaccurate of unprofessional advice. Typical scenarios for litigation include shareholder suits against Directors who were negligent in approving and confirming certain share options without shareholder approval, employee suits for back-wages, or government suits for back taxes, against the Directors or recently bankrupt privately-owned companies. Other common suits are those brought against the Directors of non-profit corporations for negligence in handling donations.

It is important to remember that legal expenses can be incurred in defending charges of this nature regardless of their validity. It is equally important to consider that Directors (and their personal estate) can be held liable for acts committed by other Directors simply because they occupy positions on the same board.

What is covered?

Directors' and Officers' Liability Insurance is designed to provide personal protection against Wrongful Acts, or Alleged Wrongful Acts, for those operating in this capacity both in for-profit and non-profit organizations. Corporate Directors are covered whether they are being sued jointly or individually for damages, judgments, settlements, costs, and defence costs. Additionally, in the event a company's bylaws stipulate the operation of an "indemnity clause" (where the corporation must reimburse Directors for costs incurred), D&O policies generally cover the corporation in this regard. If you presently have this type of policy and are involved in litigation, contact your personal insurance broker or business insurance company if you are unclear about the details of your specific policy.

Typically, new policies will not cover any prior or pending suits or matters that arise from prior or pending litigation. Also, claims that are more appropriately covered by another policy type are generally excluded as well. (For example Bodily Injury resulting from a car accident would fall under an Automobile or Commercial General Liability policy.) D&O Insurance is intended to cover negligence and excludes matters that are uninsurable under the Law, such as Insider Trading. Individual policies will vary on the specifics of what is an is not covered and should be thoroughly examined with your personal insurance broker or business insurance company before purchasing a policy or submitting a claim.

Related Legal Documents

Various Statutes affecting Directors' and Officers' Liabilities:
  • Ontario Business Corporations Act
  • Canada Business Corporations Act
  • Income Tax Act (Federal)
  • Unemployment Insurance Act (Federal)
  • Canada Pension Plan Act (Federal)
  • Income Tax Act (Ontario)
  • Goods & Services Tax Legislation (Federal)
  • Retail Sales Tax Amendment Act (Ontario)
  • Occupational Health & Safety Act (Ontario)
  • Environmental Protection Act (Ontario)
  • Ontario Water Resources Act
  • Pesticides Act (Ontario)
  • Transportation of Dangerous Goods Act (Federal) and Dangerous Goods Transportation Act (Ontario)
  • Employer Health Tax Act (Ontario)
  • Employment Standards Act (Ontario)
  • Pension Benefits Act (Ontario)
  • Construction Lien Act (Ontario)
  • Canadian Environmental Protection Act (Federal)
  • Fisheries Act (Federal)