Directors and Officers Insurance

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If your private, public, or non-profit has a board of directors, you need to protect it with directors and officers insurance. Directors face many threats due to their visibility and the nature of their role. This can lead to claims, lawsuits, and other actions resulting in financial loss.

Directors and officers liability insurance provides you an added layer of protection. At ThinkInsure, our commercial insurance brokers can help you protect your organization and board of directors. We will work with you to compare rates and plans from the top providers in Canada.

Directors and officers insurance highlights

Directors and officers (D&O) liability insurance covers directors and officers from legal challenges and fees.
D&O coverage applies to public, private and nonprofit organizations.
Directors and officers insurance does not cover criminal acts, bodily injury, or fraud.

What is directors and officers insurance?

Directors and officers insurance (D&O) is a form of professional liability insurance specifically for board members, directors, and officers. It covers legal defence costs, indemnification, and damages awarded due to alleged wrongful acts.

Directors and officers liability insurance policies. Policies are available for private firms, publicly traded companies, non-profits, and educational institutions.

Why do I need directors and officers insurance?

Directors and officers insurance provides legal protection for members on your organization's board. It protects your company when mistakes are made. A D&O policy is above and beyond what is included in standard commercial insurance. It’s necessary for several important reasons:

You cannot claim ignorance of not being aware as a defense for your actions.
Resignation of parties involved may not be enough to rectify issues.
Your current insurance plans may not be enough protection.

What are the types of D&O insurance?

D&O coverage can help organizations manage the costs associated with errors, negligent actions, and liability lawsuits.

There are three main types available to organizations:

Non-profits

Executives in non-profits share similar roles and responsibilities as other organizations. With fewer resources than corporations, it is important to have D&O insurance to protect organization board members. It helps recruit top talent to work in director and officer roles for your non-profit.

Public companies

Public companies are open to scrutiny, and key decision makers are now more accountable for their actions than ever.

Directors and officers insurance ensures your organization has access to legal counsel. It protects you if executives or management are found liable for erroneous acts, bylaw violations, or errors. You will also have coverage for legal fees and representation, providing your organization with financial protection.

Private companies

Private companies need coverage, too. You may not have the same disclosure as public organizations, but your leaders still have exposure. This includes breach of duty, conflict of interest, and misleading commerce partners, customers, and stakeholders. This plan can protect the company and personal assets of leadership.

D&O insurance subtypes

You have the option to choose between insurance subtypes, or sides:

Side A: This covers individual directors if the organization cannot cover them.
Side B: If they choose to cover directors and officers, this covers the company.
Side C: This covers the company for lawsuits for an act not covered under their current insurance.

What are common directors and officers threats and perils?

As a board member, there is an expectation that you will act in good faith. You act in the best interests of the organization. Directors and officers are accountable for their actions. Failure to be diligent, loyal, and obedient to rules could expose organizations to many issues. They include:

Errors and omissions
Breach of duties to shareholders
Wrongful acts and failure to act
Financial losses and misuse of funds
Violations of statutory liabilities set by government laws
Employee discrimination and wrongful dismissal

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What does director and officer insurance cover?

D&O liability claims can come from many sources, including employees, competitors, creditors, shareholders and government authorities. Policies cover a range of organizational issues:

Breach of contract
Contract disputes
Defamation of character
Copyright infringement and intellectual property theft
Confidentiality breach
Fraud
Other actions by directors leading to lawsuits against the organization

Why are directors and officers insurance for non-profit board members important?

Serving on the board of a non-profit is a great way to give back. But, it also leaves individual members exposed. Directors and officers of non-profit organizations have similar exposure to threats as professionals in other organizations. An oversight or mistake could result in damages greater than your net worth. This is a significant risk if you do not have it.

Today, an increasing number of non-profits and those in director positions are being sued for their decisions. Standard insurance will not cover you for legal protection of this nature.

Who does board of directors liability insurance protect?

Depending on your policy type it will provide protection for:

Your organization
Board members
Directors
Organizational leaders
Management
Other professionals listed in the policy

Directors and officers insurance claims examples

Example 1: You have to downsize. The board decides to eliminate redundant positions. Some of the affected employees started a wrongful dismissal claim against the directors for discrimination.
Example 2: A builder is in breach of safety laws. A piece of material fell off a structure they were building, violating several health and safety codes. Legal action is being taken against the director who was overseeing the project.
Example 3: A director sells off an asset for half of its estimated value and sells to a known acquaintance. Shareholders sue the director for mismanagement of financial assets.

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Directors and officers insurance FAQs

What is included in directors and officers insurance?

D&O coverage can be customized to meet the needs of your organization.

Here is what you can expect to be included in your policy:

Plans for past, present, and future directors and officers.
They are written on a claims-made basis.
It covers monetary damages as a result of lawsuits.
Limits range from $1,000,000 to as high as $25,000,000.
Deductibles can range from $0 to $2,500.
Individual directors can take out a policy.
Full entity coverage for claims made against the company itself.

What does directors and officers insurance not cover?

It does not cover criminal acts, bodily injury, property damage, fraud, illegal compensation, or prior litigation. When choosing a solution, ensure sure you are aware of exclusions and obtain other protection to mitigate those threats.

What is the average cost of director and officers insurance per year?

The cost of your premium depends on your company size, type, and perceived risk. For example, lower-risk businesses can pay as little as $400 per year for $1 million in coverage. Larger enterprises with greater exposure can pay more than $10,000 per year.

Generally, premiums increase as organizations become more prominent and have greater exposure. Small businesses are at lower risk, and publicly traded organizations are at higher risk. Getting a quote is the most effective way to determine how much it will cost.

Are there directors and officers coverage limits?

Yes, all insurance has limits. Limits vary based on your company size, risk factors, and other considerations. Continually reassess your limits when you renew each year.

How much directors and officers insurance do you need?

Coverage limits vary based on the size and type of company. The amount you need increases with your exposure, number of employees and other factors. Speak with an insurance expert about your needs and options.

What is the difference between E&O and D&O insurance?

There is one main difference between D&O and E&O policies. It is the type of actions that are part of your coverage. E&O insurance is for products and services. D&O is for management and leadership decisions.

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