Duties of directors and officers

Directors are elected by the shareholders of a corporation to guide the business operations. Officers are selected by the directors to manage the day-to-day operations of the corporation and include positions such as ‘president’ and ‘treasurer’. The duties of the various officers are established by the directors and by the by-laws of the corporation.

Both directors and officers have a fiduciary duty to the company, which includes the duty to:

• act reasonably, in good faith, and in the company’s best interest,
• place the interest of the organization before their own,
• act within the scope of applicable bylaws.

Under the law, directors are liable for:

• corporate income tax,
• GST and HST on its sales,
• payroll remittances, including the employer’s portion of CPP and Employment Insurance, and
• environmental issues.

What is D&O liability insurance?

Directors and Officers Insurance (D&O) protects directors and officers from claims made against them while they were serving on a board of directors and/or as an officer of a company. Claims are usually based on the assertion that a director or officer committed a wrongful act in the performance of their duties.

A wrongful act can include:

• errors,
• omissions,
• misstatements, or
• unlawful discrimination.

D&O insurance provides coverage for:

• the costs of defending a claim, and
• if they lose, the payment of claims, known as damages (including awards and settlements).

Who can buy D&O insurance?

D&O insurance can be purchased to protect the directors and officers of:

• public companies,
• private companies, and
• not-for-profit organizations.

In most cases, a D&O insurance policy will cover current directors and officers of an organization, but some policies may be structured to also include:

• all past and future directors and officers,
• senior management, and
• volunteers in a not-for profit organization.

What types of claims does D&O insurance cover?

D&O insurance usually provides coverage for:

• financial losses to a shareholder or to the corporation, including bankruptcy of the company,
• failure to act according to government laws or a corporate by-law, such as not filing reports or maintaining records,
• non-compliance with a statute, such as employee discrimination or wrongful dismissal, or failure to pay taxes,
• misrepresentation to creditors or customers,
• acting beyond their authority, such as improper or excessive spending or unauthorized borrowing,
• conflicts of interest, and/or
• other breaches of fiduciary duty.

What types of claims does D&O insurance NOT cover?

D&O insurance does not cover intentional illegal acts, such as:

• fraud,
• embezzlement, or
• decisions made for intentional personal gain.

How much does D&O insurance cost?

The cost of D&O insurance will depend on the type and size of the organization and the details of the policy. The average cost of $1 million of coverage is usually between $5,000 and $10,000 a year. However, for a low-risk small business, the premiums for $1 million in coverage can be a low as $500, while a high-risk business with the same coverage could pay as much as $50,000 a year.

Get help

For more information about Directors and Officers Insurance, or to purchase a policy, contact Ai Directors and Officers Insurance .

For legal advice and help, contact a business law lawyer.

								
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