Lunch and Learn D & O Insurance


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D & O Insurance Policy Overview presented by Philip Ber, FBS Insurance

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Lunch and Learn D & O Insurance

  1. 1. | | 416.646.6235 | @mapleleafangels Directors and Officers Liability Policy Overview
  2. 2. | | 416.646.6235 | @mapleleafangels Agenda Directors and Officers Responsibilities Corporate Indemnification Insurance Policy Structure Definitions Who/What’s covered Exclusions/Endorsement Indemnification Issues Limits and Premium Considerations (Company and Underwriting) Claims Examples Start Ups/Early Stage Company Insurance
  3. 3. | | 416.646.6235 | @mapleleafangels Directors And Officers Responsibilities Duty to exercise due diligence in overseeing the activities of the organization that they serve. They are required to act in good faith and in the best interest of the organization. Directors have three basic duties: - Duty of Diligence (Duty of Care): Act reasonably, in good faith, 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 the organization, within applicable rules and laws.
  4. 4. | | 416.646.6235 | @mapleleafangels Corporate Indemnification The Corporation may/shall indemnify a Director or Officer for costs, expenses and damages provided: – in all actions, if they acted honestly and in good faith to the best interests of the Corporation – in a criminal action, they believed their conduct was lawful
  5. 5. | | 416.646.6235 | @mapleleafangels Insurance Policy • Insuring Clauses/Sides A, B, C,….. Directors and Officers ( no deductible) Corporation Indemnification of D&O’s Corporate Liability Employment Practices Liability Securities Liability Fiduciary Liability Investigative Cost (Derivative Demands, sub limited) • Definitions Claim, Wrongful Act, Wrongful Act with respect to EPL Loss, Securities Claim, Reporting requirements, Defense Costs, Securities Claim, Subsidiary, Conduct , M&A Triggers/Notice, EPL - Reasonable Notice
  6. 6. | | 416.646.6235 | @mapleleafangels Definitions - Who is Covered • Insured means the “Company” and “Insured Persons” • Insured Persons (NFP) – past, present or future duly elected or appointed Directors, Officers, Trustees, Executive Director, Dept Heads, Committee Members, Employees and/or Volunteers • Insured Persons (FP) – past, present or future duly elected or appointed Directors, Officers, Trustees, Governors, Employees if named with a D&O, Estates, Heirs, Lawful Spouses, Domestic Partners or Legal Reps, “acting solely in their capacity as such on behalf of the Corporation”
  7. 7. | | 416.646.6235 | @mapleleafangels Definitions • Wrongful Act any actual or alleged acts, errors or omissions, misleading statements, negligent or breach of duty by D&O’s (Insured Persons) either individually or collectively, while acting in their capacities as a D&O of the Corporation • Claim (Written) a civil, criminal, governmental, regulatory, administrative or arbitration proceeding made against any Insured seeking monetary or non- monetary relief,
  8. 8. | | 416.646.6235 | @mapleleafangels Insurance Policy • Defense Provisions Costs inside or outside limits Insurer has no right or duty to defend, reimburse Insurer has a right and duty to defend, appoint or approve counsel Waiver of Retention for “no liability” claims • Standalone D&O Policy Specifically for D&O’s only No Corporate coverage No sharing of limits • Claims Made concept Policy responds to a claim made during the policy period Wrongful act may have occurred in the past Claim presented to insurer as soon as possible within the policy term
  9. 9. | | 416.646.6235 | @mapleleafangels Insurance Policy • Retention (Deductible) • Endorsements & Exclusions Financial Impairment Prior Acts Pollution Loss Hammer clause Predetermined Defense Cost Allocation Additional Side A (D&O limit) Professional Services Exclusion (E&O) Financial & Professional Services Exclusion Bodily Injury, Property Damage Exclusion Extended Reporting Period or Run Off
  10. 10. | | 416.646.6235 | @mapleleafangels Indemnification Issues • The inability due to insolvency or insufficient funds • Discretionary attitude of the board • Public policy and statutory limitations • The scope of indemnification permitted by law and the scope of liabilities imposed on Directors & Officers • Indemnification is on a reimbursement not on behalf of basis • The unavailability of coverage in Commercial General Liability, Product Liability and Professional Liability policies
  11. 11. | | 416.646.6235 | @mapleleafangels Limit and Premium Considerations (Company and Underwriting) Profit or Not for Profit Private or Public (Canada, USA or Foreign) Size of Corporation (Asset Value/Sales) Corporate Structure Business Activities Market Cap Countries of Operation Financial Strength Sleep Factor
  12. 12. | | 416.646.6235 | @mapleleafangels Claims examples . Misrepresentation Suit from a Prospective Investor Employee count: approximately 75 Annual revenue: approximately $25,000,000 An officer of XYZ Corporation held a conversation with a potential investor in which they discussed the future plans for the company, including the launch of new products over the coming six months. Based on this information, the investor committed over $500,000 to the company. After a year, the products the investor had anticipated did not appear in the marketplace and the value of the original investment declined. The investor sued XYZ and its directors and officers for misrepresentation, seeking over $10 million in compensatory and punitive damages Following two years of litigation and $250,000 in defence costs, the parties finally reached a settlement with the plaintiff for $335,000. Claims examples provided by Chubb Insurance
  13. 13. | | 416.646.6235 | @mapleleafangels Claims Examples Sale of Subsidiary – Misrepresentation Employee Count: approximately 145 Annual revenue: approximately $7,600,000 In early 2000, XYZ Company sold 100% of its primary asset of its subsidiary ABC Limited to QRS Corporation. Prior to the transaction in 2000, Transport Canada performed an inspection of the asset. In 2004, Transport Canada performed another inspection. During the 2004 inspection, they informed the claimant that much work was needed in order to keep the asset in operation. According to the 2004 inspector, these were repairs that should have been pointed out in the 2000 inspection. The defects were major and could not have been ignored 4 years prior. These repairs allegedly added up to $8.6M. Without these repairs, the asset would have to be put out of service. In 2005, a demand letter was sent to the defendant. The parties tried to come to an agreement but did not have any success. QRS Corporation alleged that XYZ Company knew, at the time of the transaction, of the poor condition of the asset, and that they did not perform the necessary repairs on the asset knowing it would be sold soon. The plaintiffs allege that the Directors and Officers misrepresented the quality of the asset to benefit from a higher sale price and that they acted in bad faith, fraudulently, and to their personal profit. Insurer is defending the company’s directors and officers with respect to the misrepresentation claim. Insurer has paid approximately $689,000 in defence costs and $7,000 in indemnity. Claims examples provided by Chubb Insurance
  14. 14. | | 416.646.6235 | @mapleleafangels Claims example Human Rights: Ontario – Retaliatory Wrongful Termination and Discrimination Employee count: approximately 120 Annual revenue: approximately $20,000,000 This matter was brought before the Human Rights Tribunal of Ontario. The applicant, a 21 year employee, alleged that she was the victim of retaliation in the form of wrongful termination. The applicant felt that her termination was the result of her previous allegation related to discrimination and harassment on the basis of her disability (depression). She sought $430,000 in damages. The matter settled for $75,000 representing common law notice and mental anguish damages. Defence costs of $10,000 were incurred Claims examples provided by Chubb Insurance
  15. 15. | | 416.646.6235 | @mapleleafangels Start Ups/Early Stage Companies Insurance Requirements • General Liability (Product & Premises) • Professional Liability (Errors & Omissions) • Property • Employment Practices Liability • Directors and Officers Liability • Cyber Liability (Network, Privacy, First Party Issues) • Intellectual Property Coverage (Patents) • KRE
  16. 16. | | 416.646.6235 | @mapleleafangels Questions ? Presented by: Philip Ber Financial Service Brokers Ltd. Office: (905) 731 2816 Cell: (416) 729 1389 email: