Company directors and officers are subject to financial and legal obligations in the performance of their management duties. Their activities are covered by the Civil Code of Québec and the Canada Business Corporations Act, and include obligations of prudence, diligence and loyalty, among others. Company officers are also authorized legal agents of the company. Breaches of obligation can involve personal liability for company executives.
Which companies should think about getting directors’ and officers’ liability insurance?
Legal defense costs in the event of a lawsuit can jeopardize a company’s finances; therefore, all organizations with a board of directors should take out such protection. There are specific products tailored to the particular needs of public corporations, private companies and non-profit organizations.
What are the most common risks for directors and officers?
- Financial obligations in the event of bankruptcy (debts, unpaid salaries, etc.)
- Lawsuits from shareholders disgruntled with the company’s financial performance, with the compensation given to the board or with a dispute over a sale or acquisition
- Lawsuits for wrongful dismissal, harassment, working conditions, breach of contract or an employee’s failure to receive a promotion
- Lawsuit or fine imposed by a government or industry regulatory body for issues including work health and safety, the environment, taxes, etc.
- Lawsuit by competitors regarding the company’s business practices
- Lawsuit by customers or suppliers for breach of contract or unpaid debts
What does directors’ and officers’ liability insurance typically cover?
- Personal liability for directors and officers
- The business entity
- Lawsuits relating to employment practices
- Trustee liability
Prevention tips for directors and officers
Anyone considering a position as a director or officer with any organization should do the following:
- Ensure there is an indemnity agreement in place to protect them in the event of a lawsuit
- Make sure the organization has an insurance policy for directors and officers
For more information on directors’ and officers’ liability insurance, talk to your Ultima broker.