What is directors and officers liability insurance?

The purpose of directors and officers liability insurance is to act as a safety net and offer financial compensation to senior managers of an organization if they are personally faced with a lawsuit or claim as a result of an actual or alleged fault committed in the course of their duties.

It provides compensation to cover the damages, settlements and legal defence fees that can result from allegations of wrongdoing and proceedings brought against all types of decision-makers.

Wrongdoing of which they may be accused and which can be covered by directors and officers liability insurance includes:

  • Irregularities and wrongful acts in terms of recruitment and human resources
  • Failure to comply with the law
  • False statements made to shareholders, creditors and others
  • Financial mismanagement
  • Failure to fulfill fiduciary obligations
  • Lack of transparency
  • Mismanagement
  • Conflicts of interest
  • etc.

However, it excludes:

  • Fraud
  • Bodily harm
  • Property damage
  • Current and past litigation
  • etc.

What coverage does this insurance provide?

Directors and officers liability insurance generally has three components:

  1. Direct indemnification for directors and officers that protects their personal assets in the event of proceedings brought against them
  2. Reimbursement for indemnities that the company has paid to officers or directors
  3. Proceedings brought against the company directly that protect the company against its own losses in the event of a joint lawsuit with the directors and officers

It is also possible to add optional needs-based additional coverage to the policy

To make sure you have the right coverage to protect your directors and officers, we advise you to speak with one of our fully independent brokers. They will conduct an in-depth analysis of your company’s situation, advise you on what coverage is needed and work with insurance companies to find what’s right for you, at the best possible price.

Who is directors and officers liability insurance for?

Companies of any size can benefit from directors and officers liability insurance.

Each time someone at the head of an organization—no matter its size—makes a decision, they are exposing themselves to lawsuits by creditors, suppliers, customers, competitors, legislators, employees and shareholders. This means that they might need directors and officers liability insurance!

Know that commercial companies and not-for-profit organizations can all benefit from directors and officers liability insurance. It can protect members of a board of directors as well as the officers of a private company and the directors of a not-for-profit organization.

An attraction and retention tool

In addition to reducing the risk of costly corporate lawsuits, directors and officers liability insurance ensures decision-makers’ peace of mind.

With this insurance, they know that their personal assets are protected, which can make it easier to recruit and retain new high-level talent.