Directors' & Officers' Liability
What is it?
Directors' and Officers' Liability Insurance (D&O) is insurance payable to the
directors and officers of a company, or to the corporation itself, to cover
damages or defence costs in the event they are sued for wrongful acts while
they were with that company.
Claimants often include shareholders, customers, regulators, and even
competitors (for anti-trust or unfair trade practice allegations).
Most potential directors or officers require that a company maintain a D&O policy
before they will agree to sit on the board.
Five things you should know about D&O
Directors and officers are not protected by corporate status.
The members, volunteers, directors, and officers may still be liable even if the organization is legally incorporated. Directors and officers of a corporation are responsible for their own actions as well as those of the corporation. In some instances they are even responsible for the actions of other directors. The courts have assessed damages against directors of corporations for their wrongful actions and in some cases the laws impose specific legal responsibilities on these directors.
It's a hard truth. One that is best understood before a claim occurs.
Even organizations that try to do good can get hit with a D&O
law suit.
Charities and non-profit organizations may not have shareholders, but they do have other stakeholders. Potential plaintiffs include representatives of government agencies, donors, vendors, service recipients alleging injury from the non-profit's actions or failure to act, or employees and volunteers.
Resigning from the board doesn't protect you.
When directors or officers resign from a company when they find out there is a
problem,they can still be sued. They have a duty to be diligent and oversee the operation of the organization. If they failed this duty, even by omission, they can still be held liable even after they have resigned.
Not all policies or insurers are equal.
At the time of a D&O claim, the last thing you want to learn is that your coverage isn't as good as you thought it was. While coverage itself is important, and must cover all the exposures that are unique to your organization, don't underestimate the amount of expertise required to properly identify your areas of exposure. Similarly,you want a company that can step up and guide your organization through the claims process, and always ensure that your insurer is financially stable and able to pay claims on your behalf.
Defending you is often the most difficult and expensive part of a
D&O suit.
Your D&O policy typically includes the requirement to defend your organization against lawsuits. Your insurer steps in with their years of D&O experience and works on your behalf to settle, defend or dismiss the claim.
For many organizations without proper D&O coverage, the cost to defend yourself against a suit can be permanently damaging — even if the suit against you settles in your favour.
Fiduciary Liability
What is it?
Fiduciary Liability Insurance protects organizations and the fiduciaries of their
benefit and pension plans for any legal liability that arises from their
management of those plans.
When it comes to managing the pension plans of their employees, fiduciaries of
a pension plan are held to very high standards. Any breach of this duty —
intentional or not — can result in suits being brought against them and the
company.
Given the importance and scope of the potential financial loss to the company,
it's executives, and the fiduciaries of the plan, Fiduciary Liability Insurance is
often purchased by a company to respond should this responsibility be breached.
Five Things You Should Know About Fiduciary
Liability Insurance
Fingers are pointed everywhere.
Fiduciary suits can — and do — target; directors, officers, Human Resource managers, plan fiduciaries, and other executives, as well as consulting firms, lawyers and other people who provided advice to the organization being sued.
Governmental regulators want their piece too.
Given the nature of pension plans, if employees or retirees suffer from bad fiscal
management and oversight, the regulators step in and punish those who allowed it to take place under their watch.
Many fiduciaries are widely exposed, but don't know it.
Many executives are unaware how far reaching their fiduciary duty is. In addition to pension plans and trust funds, there are other funds that fall into the same category, such as profit sharing plans, employee stock ownership plans, and even health and wellness plans. In addition, many directors and officers believe that the decisions made under their watch are protected by the company's D&O policy. In most cases, they aren't as D&O policies exclude fiduciary liability exposures.
It's not all about money.
Employers have many fiduciary duties. Although the press of the Enron and Worldcom employee pension plans got our attention, the courts have been receptive to broader interpretations for things such as employee discrimination, denial of benefits
claims,reduction of benefits limits and other HR issues. While the focus might not be on a financial payout, it still costs a company a tremendous amount of money to defend.
It *is* about the money.
The Towers Perrin Fiduciary Liability Survey states that it costs, on average,
$126,000(USD) to defend a Fiduciary claim. During the same time period, the average court award was $1.25 million (USD). Of course, those are the averages. It is not uncommon for awards to reach tens, if not hundreds of millions of dollars.
Employment Practices Liability
What is it?
Employment Practices Liability (commonly referred to as EPL) is insurance that
protects a company, including its directors, officers and employees, against
claims made by the organization's employees or prospective employees.
An EPL policy responds to a variety of claims that arise out of the organization's
employment practices, such as:
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Discrimination
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Employment-related libel and slander
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Employment-related misrepresentation
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Failure to provide or enforce adequate workplace or employment policies
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Retaliation
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Sexual or workplace harassment
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Wrongful demotion
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Wrongful discipline
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Wrongful dismissal
•
Wrongful failure to employ or promote
Five Things You Should Know About Employment
Practices Liability
You're only one off-colour joke away from being sued.
Most organizations feel that they treat all of their employees well and with respect, but everyone has a bad day. Every company has an employee who can be a bit too brash, and
we are all at the mercy of a struggling staff member looking for an excuse to right a perceived wrong.
The employment law landscape is rocky and complicated.
Our employment practices are governed by a myriad of laws, bylaws, regulations and case law. On any given day, your HR staff may find themselves involved in issues related to whistleblowers, discrimination charges against disabled persons, sexual harassment claims, or an executive crying foul over a misrepresentation in their compensation plan. EPL insurance steps in when your HR department has done everything they can to mitigate an unfortunate situation.
The big three still represent most claims.
According to an EPL survey conducted in 2008, race, sex and age discrimination are the most common charges, with national origin, disability and religion rounding out the list.
It takes two to fight.
This same survey shows that a full 64% of all complaints came to light AFTER the employee complained to their HR department or manager. In these cases, the individual suffered retaliation by co-workers or management for making their original complaint.
The cost of EPL Coverage is lower than you think.
A common misconception is that only the very large corporations purchase an EPL policy due to its high cost. When the product was first introduced in 1991 this was the case, but not anymore. In today's marketplace an organization can secure an EPL policy that will cover this exposure for a nominal price.
