Directors and Officers Liability Insurance

By Max Ali

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.