Interested in learning more about directors’ & officers’ liability? Download the Co-operators D&O Liability one-pager, click here.
With good intentions in hand, and passion to action your organization’s purpose and vision in your community, it might not occur to you that you may have a personal financial risk because of your position on the board. Perhaps you are close to hanging up your hat, as your work is done, and succession to the next director is imminent, could a past decision come back to haunt you?
The acronym frequently used as “D&O”
This stands for directors’ & officers’ liability. As a director or officer on the board, you make key decisions that impact the various people who work for, volunteer for, or use the resources of your organization. The purpose of your organization will drive your business decisions, and those decisions make an impact. These impacts can be positive or unknowingly negative.
As directors and officers, you wouldn’t intentionally do harm
You cannot control the outcome of your decisions for others. The Insurance Bureau of Canada notes that directors and officers have 3 basic duties*: which include:
- Duty of Diligence (Duty of Care): Act reasonably, in good faith and in the organization’s best interest.
- Duty of Loyalty: Place the interest of the organization before your own.
- Duty of Obedience: Act within the scope of applicable bylaws.
They also advise to consider your liability, in addition to basic duties*, a director or officer could be held liable for:
- Failure to act as stated under a statute. For example, if a statute requires directors to file a report or maintain certain records, and these reports or records are not maintained, the director may be liable for an offence under that statute.
- Non-compliance of the organization with a statute. For example, directors may be liable for financial losses, wrongful dismissal, employee discrimination or failure to remediate environmental damage.
Be aware that directors can be held personally liable and that:
- Ignorance is not a defence.
- Resignation is not necessarily a defence.
- Company indemnity may not be enough.
The Insurance Bureau of Canada created an informative article linked here that speaks to ensuring new directors and officers, both paid and volunteer, have the appropriate information required to perform their duties effectively. There is an expectation that as a director or officer, you are responsible for making sure you gain all the education and ability to manage your role effectively. It’s important to always do your due diligence when joining a board.
What happens when your good intentions go awry?
You become aware there might be a claim against your organization. Are you scrambling to find out if you have insurance in place to protect you? Did you confirm prior to accepting your position that there indeed is a directors’ & officers’ liability policy in place, you know who your advisor is, and are able to place a call to confirm the next steps? Since you are here, reading this article, I am hoping you are in the research stage of accepting your nomination, and getting your questions answered around your own liability risks.
Building a great relationship with your insurance advisor can start at any time, maybe it’s the same advisor the organization has been using since they started, maybe you’re looking for a new one. Having an advisor who knows how nonprofits operate and the risks the individuals face while working on these organizations’ behalf is essential. You should expect open communication, being able to contact your advisor when needed to discuss new needs, potential claims situations and have general knowledge questions answered. An advisor who is diligent in these areas will be a great insurance resource. There are advisors who may want to get involved in your organization and participate in your community events, as a sponsor or volunteer.
Interested in learning more about your insurance policy and overall risk management? Download the Co-operators D&O Liability one-pager, click here.
There is essential coverage for financial protection against lawsuits
This is available in a directors’ and officers’ liability policy. This is a resource the organization would pay for to protect you as a director or officer on the board. If you are a director or officer on the board, I would recommend that you take additional steps to ensure this policy is reviewed and renewed annually, as a personal precaution. Let’s define liability, specifically in insurance jargon: meaning legal responsibility for one’s acts or omissions. Liability insurance typically covers legal costs and payouts if the insured is found legally liable for claims of harm or wrongdoing against a third party, including injuries and property damage.
Most D&O policies provide coverage for:
- Financial losses resulting from a wrongful act committed by you or someone on your policy.
- Legal defense costs.
Understanding how an insurance policy would respond to a claim helps to sharpen your risk management skills
Understanding empowers better decision-making. It’s in your best interest to understand what types of financial losses could occur, and what a wrongful act could look like, and to understand where and how legal defense costs would be paid. This is why it’s important to have a great relationship with your advisor, who can explain what these cover in depth, and help you to better understand where and how they play a factor in your day-to-day director & officer duties. Each organization has its own set of requirements, just as each insurance company has its own D&O liability offerings.
Exclusions are always a part of the D&O liability policy
Just as it’s important to understand the coverages offered, it is also particularly important to understand the various exclusions, so there are no surprises that pop up. A diligent advisor will make this part of your annual review, ensuring you understand the exclusions. There are other specialty or additional coverages that can be added to increase your protection against various claims beyond those noted above. This is another important conversation to have with your advisor. Co-operators has a great article defining the various coverages, linked here, if you want to read it.
D&O liability is a resource that you want in your organization’s back pocket
With an advisor that you can turn to with any questions or concerns, who can clearly explain how and where you are protected. The best way to start is to call your current advisor with a list of questions or determine who in your organization has taken care of this and speak with them. Don’t wait for a claim to do your due diligence to ensure that you won’t be held personally or financially responsible. Resignations are not enough!
Co-operators in your community: Co-operators staff and financial advisors have been making Canadian communities safer, healthier, and more resilient for decades. As a co-operative, our commitment to communities is an operating principle that inspires us to take action, provide support and raise awareness when there’s a need.
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