Insurance for directors and officers

Directors and Officers
Protect Yourself
Against Lawsuits!

Being On the Board of Directors – A Risky Job

Do you know that you could personally be sued if the comity you administrate omits to pay its employees? Indeed, the risks linked to management by directors and officers are multiple and apply to two entities:

1. Non-Profit Organisations
Despite the fact that many administrators are involved in many different causes and organizations, they are rarely aware of the legal aspects of their volunteering work and their personal responsibility. This responsibility extends to all non-profit organizations, including clubs, associations, societies, leagues, comities and charitable organizations.

2. Profit Oriented Companies – Private and Public
Strategic decisions are taken by the directors representing the shareholders, in collaboration with the other members of the counsel. But in the end, the execution of these decisions is under the responsibility of the officers and this exposes him to various types of lawsuits.

A director or officer can be held accountable in a claim concerning:

  • The activities carried out by volunteers and personnel in the name of the organization
  • Failure to pay government deductions at the source
  • The allocation of dividends despite the financial instability of the company (this could result in a lawsuit from unhappy shareholders)
  • Discrimination of personnel
  • Unjustified dismissal of an employee
  • Breach of trust for the obligations mentioned above

It is important to verify if the organization or company in which you are implicated possesses this type of insurance to protect you personally. It should be a non-negotiable condition to accepting a seat on any board of directors.

Liability Insurance for Directors and Officers

This insurance covers the financial costs that directors and officers could be forced to pay following any damage done to a third party.

However, as opposed to a general insurance policy for civil liability which offers protection against physical injury of material damage, the insurance policy for directors covers losses resulting from “injurious acts” attributed to a director, a member of the board or an officer.

The insurer commits to cover the defence fees for criminal accusations and this only if there is a verdict of acquittal. The insurer will not conclude any settlement without approval from the insurer.

Exclusions

In addition to the usual exclusions for pollution and nuclear risks, some exclusions are more specific to this type in insurance:

  • All gains collected by the director in relation with his position
  • Physical injury or material damage (these must be covered by additional insurance)
  • Claims for lawsuits linked to insider trading
  • Etc.

Read your contract carefully to learn about the other exclusions or ask your Lareau broker for advice.

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