The liability of the Directors and Officers of a small business, firm, organization or non-profit group in Ontario are often over looked. The truth of the matter is, the exposure to any Director or Officer, regardless of whether they are full time and on payroll, or act on a part-time volunteer basis, they may be liable and subject to a lawsuit by disgruntled clients, employees and the public at large.
Directors and Officers Liability Insurance, sometimes called D&O, is liability insurance payable to the directors and officers of a company, or to the organization itself, as indemnifications for certain damages/losses or advancement of defense costs in the event any such insured suffers such a loss as a result of a legal action (whether criminal, civil, or administrative) brought for “alleged” wrongful acts in their capacity as directors and officers (as to the individual directors/officers) or against the organizations.
These actions may be for securities claims or, if private, other actions against the organizations themselves. Such coverage can extend to the defense costs arising out of criminal and regulatory investigations/trials as well. In fact, often civil and criminal actions are brought against directors/officers simultaneously along with the firms/organizations they represent. Defence costs alone can easily run into the thousands of dollars in Ontario.
When considering the cost of providing D&O insurance cover for it’s Officers and Directors each business or organization should also consider the following;
The basic principle underlying the acceptance of D&O insurance is that companies and it’s shareholders, are best served by knowledgeable directors and officers who take strategic risks based upon the information reasonably available to them, at the time the decision is made, without the threat of personal liability. By doing so, it is believed corporations are better able to attract qualified, intelligent, and reasonable directors and officers to manage the operations of the company. Not only would this result in better returns for shareholders and interested members of the organization, but also benefit society in general, due to the increased productivity, job creation and advancement of products due to such calculated business decisions.
In addition to D&O insurance, well-processed decisions, that are made by the executives of a company, will be made without fear of personal financial loss should their well thought-out plan not come to fruition. As practical and sound as that proposition may sound, Ontario provincial and Canadian federal laws deny such executives indemnification for claims that arise out of their well intended efforts. As a result, Directors and Officers insurance exists and should be part of any overall Ontario Business Insurance plan, which includes Officers and or Directors.
Specific requirements and costs for your firm/organization should be discussed on an individual
basis with a licensed professional insurance provider. Contact us at Insurance Ontario to discuss your business insurance needs.