Canadian HR Reporter

CANADIAN HR REPORTER February 20, 2017 24 FEATURES BENEFITS Protecting your people Directors' and offi cers' liability insurance can go a long way to preventing loss By Ryan Seager M anaging a business has become significantly more complicated for corporate directors and offi- cers. Globalization, economic instability, increased competi- tion and strengthened regula- tion, among many other factors, have all forced a new form of stress upon executives. Unfor- tunately, a management deci- sion can result in an unforeseen consequence that can materially impact a company's financial position and security — and, in certain cases, put an executive's personal assets at risk. In law, directors and offi cers are the "stewards" of a corporation, and in their capacities as such, they assume a personal fi nancial responsibility for the decisions they make and their outcome on the business and its stakehold- ers. What is startling, however, is this liability is quite often mis- understood or even completely overlooked. In the 2013 Baker v. Ministry of the Environment, a highly publi- cized Canadian environmental case, the Ontario Divisional Court ruled that a group of directors must personally contribute mil- lions of dollars to the costs asso- ciated with cleaning up contami- nated land. Today, we continue to see com- panies, large and small, reeling from the repercussions of events like this. Data breaches, corporate insolvencies and environmental incidents are common examples of debilitating management events that test the limitations of insurance. Many of Canada's major gen- eral insurers underwrite a suite of specialized liability policies that were designed specifically for these types of emerging risk. A sophisticated directors' and of- fi cers' liability (D&O) program is imperative to the success and continuity of any corporation and the security of the individuals who manage it. Nevertheless, every management team faces a unique risk profi le and should speak with a licenced insurance broker to more clearly understand which coverages are a right fi t for their business and staff . D&O liability insurance: A policy that provides coverage to directors, offi cers and the entity itself for loss arising from certain wrongful acts, including manage- ment errors, omissions, misstate- ments, misleading statements, neglect or breach of duty. Side A diff erences-in-condi- tions (Side A DIC) insurance: A highly specialized policy that complements traditional D&O coverage and provides a dedicated excess insurance limit to directors and offi cers. Employment practices liabil- ity (EPL) insurance: A policy that provides coverage for loss arising from certain wrongful acts that may occur during the hiring, management and termination of employees. Fiduciary liability insurance: A policy that provides coverage for loss arising from the mis- management of employee benefi t plans. While the D&O policy is cer- tainly one of the most valuable corporate assets, individuals in- sured under the policy must be aware its coverage is not always ironclad. What many buyers tend to misunderstand is that the D&O policy limit is shared between all insured parties — namely, the en- tity itself and the directors and of- fi cers who manage it. Statistically, claims brought against the entity are more com- mon, more complex and more costly to defend than those brought against individual di- rectors and offi cers. In fact, cer- tain claims can exhaust an entire policy limit, leaving directors' and offi cers' personal wealth exposed to loss. is is precisely where a Side A DIC policy comes into play. As a complementary product to tra- ditional D&O coverage, the Side A DIC is structured specifi cally to protect insured individuals in cases where all other coverage has been fully exhausted or is other- wise inaccessible. e "diff erences-in-conditions" Avoiding loss Without a stand-alone Employment Practices Liability (EPL) policy in place, a company may be exposed to signifi cant fi nancial loss in the event of an employment-related claim. While a traditional D&O policy does provide a limited EPL extension for the insured persons (directors and offi cers) under the policy, unless "entity coverage" is purchased deliberately, the company would remain exposed to signifi cant employment-related risk. Since executives at many companies are fairly removed from routine employment practices, claims made against an insured person are less common than those made against the entity. Employment-related allegations, regardless of their merit, are highly costly to manage and defend. For many companies, a "stand-alone" or "entity" EPL policy may be a highly valuable investment. This is especially the case for companies with employees based in the United States, where employment- related litigation is signifi cantly more common and corporate defence costs are astronomical. INSURANCE > pg. 28 The D&O policy limit is shared between all insured parties. © 2017 Thomson Reuters Canada Limited 00239II-A86236-NK Save 20% to 30% on selected titles in the 2017 Human Resources Collection The 2017 Human Resources Collection is now available. Go to store.thomsonreuters.ca/hrcollection to see a wide selection of titles from all areas relevant to you: • Human Resources • Labour & Employment • Occupational Health & Safety • Payroll Watch for savings opportunities of 20%, 25% and 30% throughout the catalogue and give us a call to receive your discount.

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