Business management has always had a duty to exercise due diligence in performance of their duties. However, following a string of well publicized corporate scandals and failures in the USA and Canada, the scope, performance, and accountability of directors’ and officers’ duties to shareholders, employees, creditors, and other stakeholders have been widened. There is also a trend towards holding directors personally responsible for acts of the corporation, in an attempt to force directors to take increased responsibility for oversight of the company’s operations.
So, whether your company is publicly traded, private, or non-profit, your directors and officers are exposed to a number of liabilities, and can be held personally liable for alleged negligence in the way they run the company, or because of unethical or even criminal behaviour.
Directors and officers liability insurance (can also include Employment Practices Liability Insurance), covers your damages and/or defence costs in the event that you are sued for alleged wrongful acts while acting in your capacity as a director or officer. It could be compared to an errors and omissions policy that protects the business, except in this case the directors and officers liability insurance policy protects the directors.
Specific duties and responsibilities are imposed on directors as to the conduct in which they run a business. These responsibilities are imposed under contract conditions. Common law and statutory legislation and, in most circumstances, the individual director or officer will be personally liable.
A lawsuit may be launched under these and other circumstances:
Other examples of failure to fulfill legal requirements can include such things as the wrongful dismissal of an employee, employee discrimination, or failure to remedy a safety or environmental hazard. Liability could also result from non-compliance with a corporate statute, mismanagement, or financial losses.
Note: Liability is not limited to the business or corporation.
A directors and officers insurance policy is usually divided into two periods of coverage:
It’s easy to learn more about directors and officers liability coverage. Just contact us today!