Risk & Business Magazine Knight Archer Insurance Spring 2016 | Page 8

R
& Directors & Officers Liability Insurance
B Risk Financing Strategy
BY: KNIGHT ARCHER COMMERCIAL INSURANCE

A

s an officer or director at your
organization, you encounter a myriad
of employment-related exposures. Directors
are increasingly at risk for claims and
elevated settlement costs.
The legal cost to defend a director is
substantial, as are the potential penalties
that can be personally incurred. Due
to the personal liability risk—which is
not covered under a personal insurance
policy—protecting boardroom talent can
be a challenge. A directors’ and officers’
liability insurance (D&O) policy is part of
a comprehensive risk financing strategy.

D&O Fills the Coverage Gap
Unlike a commercial general liability
policy that provides coverage for claims
arising from property damage and bodily
injury, a D&O policy specifically provides
coverage for a “wrongful act,” such as
an actual or alleged error, omission,
misleading statement, neglect or breach
of duty. A D&O policy provides defence
costs and indemnity coverage to the entity
listed on the policy declarations, which
may include:
• Coverage for individual directors
and officers
• Reimbursement to the organization
for a contractual obligation to
indemnify directors and officers
that serve on the board; and
• Protection for the organization or
entity itself.
Indemnification provisions are typically

8 SPRING 2016

included in the bylaws of a corporation.
While an important risk component, small
to mid-size privately held companies or
non-profit organizations often do not
have the financial resources to fund the
indemnity provisions, making the bylaws
hollow. A D&O policy can provide an extra
blanket of security in the event of a covered
loss.
A “fraud” exclusion is typically included in
a D&O policy, which eliminates coverage
for losses due to dishonest or fraudulent
acts or omission, or willful violations of
any statute, rule or law.
There are additional forms of coverage to
protect directors and officers, including:
• Entity coverage;
• Payment
persons;

priority

for

insured

• Severability of the insured as well as
severability of the application;
• Coverage over time, meaning
coverage responds to past, present
and future directors and officers;
• Pay on behalf clause; and

provide a duty to defend clause and are
subject to a substantial deductible. Many
EPL endorsements do not provide for a
separate limit of liability in addition to the
limit available under the D&O policy. If
the D&O limit is reduced or exhausted by
payment of an employment practices claim
involving the wrongful conduct of an
employee, a director’s or officer’s personal
assets may be at risk.

Considerations for Non-profits
Non-profit organizations often report
some difficulty in affording D&O
insurance. To minimize the annual
premium, they recommend choosing only
those policy provisions considered most
critical. If affording a lump sum premium
is a concern, inquire about the availability
of premium financing. To defray the cost of
premiums, some nonprofit organizations
consider charging board members a
portion of the policy cost.

We’re Here to Help
Whether you’re a non-profit, privately held
or public company, both you and your
business can benefit from a D&O policy.
Since there is no such thing as a “standard”
policy, a professional agent is invaluable
when purchasing D&O coverage.

• Duty to defend clause.
In addition, some D&O polices can be
endorsed to provide employment practices
liability (EPL) coverage and/or fiduciary
liability.
While EPL endorsements under a D&O
policy broaden coverage, they often do not

Call us today at 306-569-2289 to learn
more about the appropriate protection for
you and your company against potential
directors’ and officers’ liability.