Lunch and Learn D & O Insurance

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Directors and Officers Liability Policy
Overview

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

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.

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

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

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”

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,

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

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

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

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

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

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 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

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

Questions ?
Presented by:
Philip Ber
Financial Service Brokers Ltd.
Office: (905) 731 2816
Cell: (416) 729 1389
email: philip.ber@fsbgroup.ca

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