Directors and Officers (D&O) Insurance

Current, former and future directors and officers are typically covered, along with employees acting in a managerial or supervisory capacity. Most Canadian wordings also extend to advisory board members and committee members, and non-profit forms usually add volunteers. Coverage can extend to the organization itself, and to a director sitting on another board at your request where outside directorship liability is included.

Yes. Volunteer status is not immunity — Canadian law does not apply a lower standard to volunteer directors than to their for-profit counterparts, and directors of charities may be held to a higher, trustee-like standard. Non-profit directors also carry the same statutory exposure for wages, vacation pay and payroll remittances, and provincial volunteer-protection legislation is narrow and does not reach those liabilities. Non-profit wordings are often broader than commercial ones, frequently adding employment practices cover, first-dollar defence and a nil deductible.

Side A pays directors and officers directly when the organization does not indemnify them — because it is insolvent, legally prevented from doing so, or simply refuses. Side B reimburses the organization for indemnity it has properly paid on a director’s behalf, subject to the retention. Side C covers the organization for its own liability; on private and non-profit wordings this is usually written broadly, while on public-company wordings it is generally limited to securities claims. All three normally share a single limit.

No. Deliberate fraud, dishonesty and illegal personal profit are excluded. On a well-drafted wording the exclusion only applies once the conduct has been established by a final, non-appealable adjudication — until then the insurer advances defence costs and may seek repayment afterwards. Severability provisions mean one person’s misconduct does not void coverage for innocent directors. Criminal fines are not insurable in Canada as a matter of public policy.

Yes, and it is one of the most under-appreciated exposures on a Canadian board. Corporate and employment standards legislation makes directors jointly and severally liable for a period of unpaid wages and vacation pay, and tax legislation makes them personally liable for unremitted payroll deductions and GST/HST, together with interest and penalties. A due diligence defence exists, but it depends on steps taken before the failure rather than after it. A directors and officers insurance policy will often fund the defence of such an assessment, while the underlying tax or wage debt itself sits outside the definition of loss.

Better wordings do, but it is not automatic — look specifically for pre-claim inquiry or investigation cover. Many policies respond only once an individual has been formally identified by a summons, notice of hearing or similar, rather than during a general regulatory review of the organization. Because most Canadian regulatory exposure surfaces as an investigation long before any claim exists, this is one of the most valuable extensions to negotiate.

There is no formula, and the limit is better tested against defence costs than against a hypothetical judgment. Defence costs erode the limit on most policies, the limit is shared across every insured and every claim in the policy period, and a single oppression or employment file can run for years. Revenue, sector, board size, financing activity and any US exposure all move the answer, which is why we would rather model it with you than offer a rule of thumb.

A change of control usually places the policy into run-off: it continues to respond only for wrongful acts committed before closing. Because a director’s statutory exposures can survive for years after they leave the board, a run-off or “tail” should be negotiated at or before closing — it cannot be bought afterwards, and six years is a common term. On a dissolution or insolvency, run-off is effectively the only protection left, because no entity remains to indemnify anyone.

Not the money the employee was owed. Contractual and statutory severance is an employment cost, not an insurable loss. What the policy can respond to are the allegations built around a termination — bad faith in the manner of dismissal, discrimination, harassment and human rights complaints — particularly where a director or officer is named personally. Whether that sits inside the directors and officers insurance section or in a separate employment practices module depends on the wording.

Fraud and dishonesty, personal profit, bodily injury and property damage, professional services, pollution, prior known circumstances, prior and pending litigation, and claims brought by the organization against its own directors. Taxes, statutory debts, fines and penalties are generally excluded from the definition of loss. A well-negotiated wording softens several of these — most importantly by carving back defence costs so a director can still defend a health and safety or environmental prosecution.

Underwriters price the organization rather than the individual. They weigh revenue, assets and financial condition, industry, ownership and share structure, years in operation, claims and litigation history, transactions and financings over the past two years, governance and HR practice, and the limit and retention you select. Any US assets, revenue, employees, shareholders or listing materially changes the underwriting — and has to be disclosed.

An indemnity is worth exactly what the balance sheet is worth on the day it is called. It is unavailable when the corporation is insolvent, when the law prevents indemnity because a director did not act honestly and in good faith, and often in a derivative claim without court approval. Those are precisely the circumstances in which directors are most exposed, which is why a dedicated Side A limit matters.

Report it immediately — and report circumstances as well as claims. directors and officers insurance is written on a claims-made and reported basis, so late notice can forfeit coverage entirely. If you become aware of facts that could give rise to a claim, a notice of circumstances filed during the current policy period preserves cover under that policy even if the claim itself arrives years later. Speak to your Stanhope Simpson broker before responding to the complainant or retaining counsel.