What Is Directors & Officers (D&O) Insurance and Who Needs It?

Directors and officers make decisions that can shape the future of an organization. With that responsibility can also come exposure to claims related to decisions or actions taken while carrying out their duties.

This isn't limited to executives at large corporations. Directors and officers of privately held businesses and non-profit organizations can also face potential liability depending on their responsibilities and circumstances.

For Ontario organizations reviewing their risk management strategies, Directors & Officers Insurance, commonly known as D&O Insurance, can provide an important layer of protection.

What Is D&O Insurance?

Directors & Officers Insurance is a form of liability coverage designed to help protect directors and officers against certain claims arising from their actions or decisions made in their organizational roles, subject to the terms, conditions, and exclusions of the policy.

Depending on the policy and circumstances, coverage may help address eligible legal defence costs, settlements, or other covered losses arising from claims against directors and officers.

D&O Insurance is different from Commercial General Liability Insurance. While CGL generally addresses certain claims involving bodily injury or property damage, D&O coverage focuses on eligible claims connected to the management and governance of an organization.

Who Should Consider This Coverage?

D&O Insurance isn't exclusively for large publicly traded corporations.

Organizations that may want to consider this coverage include:

• Private companies.
• Non-profit organizations.
• Charities.
• Associations.
• Organizations with boards of directors.
• Businesses with executives responsible for significant operational or financial decisions.

The appropriate coverage will depend on the organization's structure, operations, leadership responsibilities, and individual risk exposures.

For Ottawa's business and non-profit community, reviewing D&O coverage can be particularly relevant when an organization is growing, adding board members, changing leadership, or taking on new responsibilities.

Common Risks Directors & Officers Face

Serving as a director or officer carries responsibilities that can create different forms of exposure.

Potential allegations or claims may involve areas such as:

• Breach of fiduciary duty.
• Misrepresentation.
• Errors or omissions in management decisions.
• Conflicts of interest.
• Certain employment-related decisions.
• Failure to comply with applicable organizational responsibilities.

A claim doesn't necessarily mean a director or officer has acted improperly. Responding to allegations can still involve legal expenses and considerable time, which is one reason organizations consider D&O coverage as part of a broader risk management strategy.

Federal guidance for Canadian corporations confirms that directors and officers have a range of legal duties and liabilities reflecting the positions of trust they hold within their organizations.

What Does D&O Insurance Typically Cover?

Coverage varies by insurer and policy, so organizations should never assume that every claim involving a director or officer will be covered.

Depending on the policy, D&O Insurance may provide protection for certain:

• Legal defence costs.
• Settlements and judgments.
• Claims alleging wrongful acts by directors or officers.
• Management-related errors or omissions.

Policies also contain exclusions and conditions. Intentional illegal acts, fraud, or other conduct specified by the policy may not be covered.

This makes reviewing the actual wording, limits, deductibles, and exclusions important when evaluating D&O Insurance.

Why Organizations Are Reviewing Their Coverage

Organizations change, and their insurance needs can change with them.

A small organization may add employees and executives. A non-profit may expand its programming, funding, or board. A growing company may enter new markets, take on new contracts, or introduce a more complex management structure.

Any of these changes can be a reason to revisit existing protection.

D&O coverage can also matter when attracting qualified people to leadership and board positions. Scrivens notes that concerns about personal liability can make prospective directors and officers hesitant to take on leadership roles when appropriate protection isn't in place.

For Ontario non-profits and charities specifically, provincial guidance confirms that organizations can purchase liability insurance for directors and officers under applicable conditions. The Government of Ontario's guidance for charity directors and trustees provides additional information about director responsibilities and liability protection.

Insurance doesn't replace strong governance, careful decision-making, or legal advice. Instead, it can form one component of a broader approach to managing organizational risk.

How a Scrivens Broker Can Help Protect Your Organization

There isn't a universal D&O policy that suits every organization.

The needs of a small Ottawa non-profit can differ considerably from those of a private corporation with a larger executive team. Organization size, operations, governance structure, and risk exposure can all influence the coverage that may be appropriate.

Scrivens includes Directors & Officers Liability Insurance within its commercial liability solutions. A Scrivens insurance broker can help your organization review its exposures, understand available coverage options, and consider protection appropriate to its circumstances.

Is D&O Insurance Right for Your Organization?

Directors and officers accept meaningful responsibilities when they take on leadership roles. Understanding the potential risks associated with those responsibilities is an important part of protecting both your organization and the people helping to lead it.

Connect with a Scrivens broker to determine whether Directors & Officers Insurance is the right fit for your organization.