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Directors and Officers Insurance (D&O)
Directors and Officers are responsible and accountable to the organizations they oversee. Their actions are very important and must be in good faith and of the best interest of the organization. If you play a role on a Board of Directors you know the expectations placed on them for both large and small organizations, “for profit” and “non-profit” organizations, are under the spotlight and therefore it is important to take measures to protect yourself and your reputations from allegations of negligent acts. You do have a personal liability exposure that can be quite severe if not protected.
We are frequently asked to give examples of past and/or potential claims scenarios to illustrate the potential risk. The following scenarios are not meant to intimidate you, but to illustrate the exposure that is present, even more so in this day and age.
- A non-profit organization specializing in the leisure and educational fields undertook a risky building expansion program, resulting in severe financial difficulties and a potential lawsuit against the directors and officers. The fact that their service was voluntary with no remuneration is no defense.
- The president of a professional association authorized a $150,000 investment, disregarding the requirement that anything over $100,000 has to be authorized by the board. He now faces a lawsuit.
- Two former officers of a Quebec-based association are being sued for alleged mismanagement, which resulted in a quantified loss of $500,000.
- Directors and officers of a not-for -profit and a for profit organization face claims for unpaid wages and taxes following entity bankruptcy. This is a real and dangerous exposure as liability is imposed by statute, requiring no proof of negligence.
- In 1985, the Canadian Commercial Bank of Edmonton collapsed, leaving a shortfall of $650 million. The liquidator brought suit against former directors, officers and auditors and was successful to the tune of an $82 million settlement.
- Castor Holdings Ltd., a Montreal-based investment group, went bankrupt in 1992. Creditors brought suit against the directors over $16 million in dividends declared and paid out a year prior to the company going under.
- A former shareholder of a high tech company sued the directors, alleging that they induced him to sell his shares at less than their real value by down-playing the company's prospects which were, in reality, excellent.
- A shareholder sued directors alleging that they induced him to buy shares with overly-optimistic earnings forecasts.
- A shareholder of a computer company claimed against the directors for their refusal to accept an attractive take-over offer.
- Two Quebec financial institutions launched an action against an investment dealer for $35 million. The investment dealer in turn filed suit against the former directors of the company they had represented to the two financial institutions. This case arose out of a prospectus for a debenture issue in 1990. It is alleged that the prospectus failed to disclose certain contingent liabilities (guarantees and an indemnity agreement).
- A Canadian financial institution and its directors were sued by a U.S. corporation for $47 million, alleging unjustified withdrawal of financial support for a Canadian condominium project.
These illustrate the need for good protection with sufficient limits in coverage to protect you in the unfortunate case that such a lawsuit is brought against you.
Call us to discuss your business and we can determine the best risk management package for you. We will get you the protection you need at a competitive rate. To learn more or get a free quote contact us 905-696-9090 or Toll Free 1-800-900-2009 or better@hubbardinsurance.com
Insurance Industry Coverage to Consider
COMMERCIAL PROPERTY INSURANCE
Protect your physical assets such as your building, stock, and equipment against loss.
NOT-FOR-PROFIT INSURANCE
Serving communities, raising awareness, fundraising, engaging volunteers provides meaningful services with its own insurance needs.
GROUP BENEFITS & LIFE INSURANCE
Coverage for health care, dental care, short term or long term disability, life insurance for any size businesses operation.
BUSINESS INSURANCE
Call Toll Free 1-800-900-2009