Lunch and Learn D & O Insurance
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Transcript of Lunch and Learn D & O Insurance
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Directors and Officers Liability Policy Overview
www.mapleleafangels.com | [email protected] | 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
www.mapleleafangels.com | [email protected] | 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.
www.mapleleafangels.com | [email protected] | 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
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Insurance Policy
• Insuring Clauses/Sides A, B, C,….. Directors and Officers ( no deductible) Corporation Indemnification of D&O’sCorporate Liability Employment Practices Liability Securities Liability Fiduciary LiabilityInvestigative Cost (Derivative Demands, sub limited)
• DefinitionsClaim, 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
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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”
www.mapleleafangels.com | [email protected] | 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,
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Insurance Policy
• Defense Provisions Costs inside or outside limitsInsurer 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 PolicySpecifically for D&O’s only No Corporate coverageNo 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
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Insurance Policy
• Retention (Deductible)
• Endorsements & Exclusions Financial Impairment Prior Acts Pollution LossHammer 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
www.mapleleafangels.com | [email protected] | 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
www.mapleleafangels.com | [email protected] | 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 StructureBusiness ActivitiesMarket Cap Countries of OperationFinancial Strength Sleep Factor
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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
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Claims ExamplesSale of Subsidiary – Misrepresentation
Employee Count: approximately 145 Annual revenue: approximately $7,600,000In 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 misrepresentationclaim. Insurer has paid approximately $689,000 in defence costs and $7,000 in indemnity.Claims examples provided by Chubb Insurance
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Claims example
Human Rights: Ontario – Retaliatory Wrongful Termination and DiscriminationEmployee 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 anguishdamages. Defence costs of $10,000 were incurred
Claims examples provided by Chubb Insurance
www.mapleleafangels.com | [email protected] | 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
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Questions ?
Presented by:
Philip BerFinancial Service Brokers Ltd.
Office: (905) 731 2816Cell: (416) 729 1389
email: [email protected]