Directors and Officers
Corporate directors and officers are not exempt from lawsuits. Nightmare scenarios can arise in any business context (administrative management, transactions, bankruptcy, labor relations, etc.). Faced with such an eventuality, additional coverage under their Directors & Officers (D&O) insurance policy is the best protection available.
What is Complementary Coverage?
It's an extension of coverage added to an insurance policy to improve basic coverage, followed by additional coverage.
What Additional Coverage is Provided by a D&O Policy?
- External Directorship.
At the request of his Board of Directors (BOD), a director may sit on the BOD of an external company. The Outside Director extension provides insurance protection for this director when he or she sits on the outside company's Board of Directors. An example would be a director who has been asked by his or her own Board of Directors to sit on the board of an industry, public or parapublic organization. The guarantee for external directorships offers protection for this individual when he or she sits on this external entity. - Excess Insurance for Directors and Officers (Excess Coverage A).
Coverage A - a basic feature of the D&O policy - applies in the event of a company's inability to indemnify its directors. Let's take the example of a flooring manufacturer that declared bankruptcy. Lawsuits were filed against the company's former directors by both the Department of Finance and the Canada Revenue Agency, in an attempt to collect unpaid taxes totaling over $1.5 million. In addition, employees of a subsidiary filed a lawsuit demanding $750,000 for unpaid wages, compensation in lieu of notice and vacation pay. Directors' and Officers' Liability Insurance paid out $1 million in connection with this claim. Excess Coverage A provides an additional insurance limit beyond Basic Coverage A in the event that Basic Coverage A is insufficient to cover the entire loss. In the example above, let's imagine that the Basic Coverage A insurance limit is $1 million and the Excess Coverage A limit is also $1 million. Therefore, the first million would be paid by Basic Coverage A, while Excess Coverage A would cover a second million. - Liability for Employment Practices.
In this case, for example, we are referring to an employee who, believing he or she has been unfairly dismissed, harassed and/or discriminated against, sues the directors of his or her former employer. This protection covers unfair dismissal, intimidation, harassment, discrimination, invasion of privacy and all other employment-related claims. - Fiduciary Liability
This coverage acts as fiduciary insurance, protecting trustees, directors and the company or organization in the event that the management of an employee benefit plan is found to be deficient. In such a scenario, a lawsuit could cost several million dollars in defense fees and litigation settlements. - Crisis Management Expenses
This additional protection provides access to crisis management and public relations specialists when a company's issues become public. These experts can help counter any reputational damage that might affect the organization, as well as protecting its brand image.
Why Take out Additional Protection?
Should a lawsuit or other dispute arise in connection with the duties and obligations of officers and directors, the latter protect their personal assets. They also protect any funds and liquid assets that may be needed.
On a more practical level, complementary coverage gives directors, officers and managers access to a range of experts, such as specialized lawyers, public relations professionals and others. This enables them to focus on governance and day-to-day business operations, rather than on the often complex legal aspects. As a result, they minimize productivity losses.
