What you should know about “Directors and Officers” Liability Insurance during the downturn

If you’re part of the c-suite (CEO, CFO etc.), you know that a downturn in the economy inevitably comes with difficult decisions. Whether cutbacks, bankruptcy, mergers and/or acquisitions, these decisions can come at great personal cost not only to one’s reputation but financially as well.

What is Directors and Officers Liability Insurance?
A liability insurance payable to the directors and officers of a company as reimbursement for losses or advancement of defense costs in the event they suffer a loss as a result of a legal action brought against them for alleged wrongful acts in their capacity as directors and/or officers.

Did you know that as a director or officer in an organization that your own personal assets can be utilized if there is no indemnification for the Directors a/o Officers?

The key to weathering downturns is having a solid contingency plan. This includes having the infrastructure in place to facilitate layoffs and terminations in conjunction with provincial labour laws.

Further to practicing caution with respect to employment practices, other claims which can arise during an economic downturn are: bankruptcy, security and fiduciary claims.

Protect – Protect – Protect:

• Consult legal advice
• Do not decrease policy limits
• Full disclosure during layoffs

Here are some questions to consider:

• Can I be sued for overstating financials to my shareholders?
• How does my role as a board member and an economic downturn affect my personal assets?
• Does my insurance protect me if an employee sues for being laid off?

When a corporation is unable to indemnify their Directors & Officers, “SIDE A” of the policy is utilized. Next week’s blog will explain why purchasing a “SIDE A Difference in Conditions” policy for individual directors & officers is now more essential than ever.