Canada: Liability Insurance Policies For Directors And Officers – A Checklist Of Matters To Consider

Directors and officers face a wide and growing range of potential personal liabilities in the course of carrying out their duties. A directors' and officers' liability insurance policy (or "D&O policy") can help protect against these risks. D&O policies are negotiable and policy terms and conditions can vary materially. The following is a brief outline of certain issues that directors and officers should consider when reviewing their D&O policy.

Types of Coverage

  • In addition to "Side A" and "Side B" coverage, does the policy also provide "Side C" coverage?

Most policies offer two types of coverage: "Side A", which covers directors and officers personally for non-indemnified claims, and "Side B", which reimburses the corporation for the costs of indemnifying directors and officers. In addition, many policies offer "Side C" coverage, which covers claims made against the corporation itself.

  • Is there protection against the risks associated with sharing the policy among the directors and officers and the corporation in the case of "Side C" coverage?

To protect against the risks that coverage may be exhausted, the corporation may consider:

  • purchasing "Side A only" and/or "Side A Difference in Conditions (DIC)" excess coverage (i.e., meaning additional insurance for the benefit of the directors and officers only); and
  • including a "priority of payments" clause in favour of the directors and officers.
  • To the extent there are excess policies, do these policies "follow form", such that coverage would be extended in accordance with the same terms and conditions as the primary policy?

Expiration of the Policy

  • When does the policy expire?

D&O policies are typically sold for one-year terms on a "claims-made" basis, which means that coverage will only apply to claims made during the policy period, regardless of when the wrongful act giving rise to the claim occurred. More specifically, a policy is most commonly provided on a "claimsmade and reported" basis, where claims must not only be made, but reported to the insurer, during the policy period.

  • Does the policy provide the option to purchase an "extended discovery period"?

In the event that the policy is not renewed, extended discovery coverage provides for a further period of protection (usually 12 months) for claims arising within the policy period, but discovered during the extended reporting period.

  • Is the extended discovery period only available where the insurer chooses not to renew or terminate the policy?

If possible, the extended reporting period should also be available where the insured decides not to renew or terminate coverage.

Who is Covered

  • How are the terms "director" and "officer" defined?
  • Are all past, present and future elected or appointed directors and officers of the corporation covered?
  • Is coverage afforded to individuals acting as "de facto" or foreign equivalent directors and officers of the corporation?
  • Should coverage be extended to all fiduciaries?
  • Are the directors and officers of the corporation's subsidiaries covered?
  • What constitutes a subsidiary for the purposes of coverage? Does it cover non-incorporated entities such as limited partnerships? Does it cover directors and officers who are nominees of third parties
  • Does the policy include the directors and officers of subsidiairies acquired after the commencement of the policy?
  • Is there protection in the event of death or legal incapacity?
  • Does the policy extend to the heirs, legal representatives, estates and legal assigns of the insureds in the event of their death or legal incapacity?
  • Does coverage only apply to directors and officers in their capacity as directors and officers?
  • Does coverage extend to a director or officer acting as an advisor or consultant to the corporation?

Scope of Coverage

  • What constitutes a "claim"?
  • Do informal allegations made against the directors or officers constitute a claim?
  • - Is a claim required to be in writing?
  • What types of claims are covered?
  • Is coverage limited to claims based on negligence, or does coverage extend to intentional and deliberate conduct?
  • Are regulatory investigations and enforcement proceedings covered?
  • Are administrative, civil and arbitration proceedings covered?
  • Does the definition of "loss" include coverage for fines and penalties?
  • Are statutory liabilities covered?

For example, directors may be personally liable for:

  • unpaid employee wages and vacation pay; and
  • unremitted employee source deductions, Canada Pension Plan and Unemployment Insurance premiums, as well as income taxes withheld on payments to non-residents and sales tax.
  • What types of damages are covered?
  • Are punitive or exemplary damages included?
  • Are damages resulting from both judgments and settlements covered?
  • How are defence costs covered and advanced?

Does coverage extend to full legal, accounting, adjusting and investigative costs? Are these applied to reduce the policy limit?

Policy Exclusions

  • What types of claims are excluded from coverage?

Common exclusions include claims arising from:

  • the specific intention or conduct of the individual, such as fraud, wilful misrepresentation, dishonesty or the obtaining of a personal benefit to which the director or officer was not legally entitled;
  • bodily injury or property damage;
  • environmental damage or pollution;
  • matters which are uninsurable at law;
  • insider trading;
  • claims existing prior to the commencement of the policy;
  • allegations made by one insured against another insured (also known as the "insured vs. insured" exclusion); and
  • violations of pension legislation or common law by fiduciaries of any pension, profit sharing or other employee benefit plan or trust.
  • Can the policy exclusions be restricted?
  • Are exclusions based on the misconduct or dishonesty of a director or officer subject to a full severability clause?
  • Can the insurer deny coverage for alleged misconduct or dishonesty?

Ideally, coverage should only be denied where the misconduct or dishonesty is proved by final adjudication or there is an admission of liability.

  • How restrictive is the "insured vs. insured" exclusion?
  • Does it provide a full defence costs carve out?
  • Does it contain carve outs for claims brought outside of the U.S. or Canada?
  • Does it contain a carve out for derivative actions brought against the directors?
  • Does it contain a carve out for claims made by former directors of the corporation?
  • Does it contain a carve out for claims made by a trustee in bankruptcy (or administrator, monitor, examiner or rehabilitator)?
  • Does it contain a carve out for employment practice matters?
  • Does it contain a carve out for claims for contribution and/or indemnity?

Defence of a Claim

Who controls the defence of the action? Who selects defence counsel?

  • Is there a "duty to defend" on the part of the insurer (i.e., is the insurer required to defend the directors and officers in litigation commenced against them)? How expansive is the duty?
  • Has the insurer reserved the right to approve defence expenses and be associated with the defence where the insured controls the defence of the action?
  • Can settlements or compromises be made without the consent of the insurer?
  • Does the policy address how defence costs will be allocated (for example, where a claim includes both insured and non-insured aspects, or involves insured and non-insured parties)?
  • Is a set percentage or pre-determined formula provided?
  • How will defence costs be allocated where a claim is made against the directors and officers of the corporation and the corporation jointly?
  • Should priority be given to losses associated with the wrongful acts of the directors ahead of the indemnification costs of the corporation?

Cancellation and Rescission

  • Can the insurer cancel coverage at any time upon notice to the insured?

This right may be removed where the policy allows the introduction of a "non-cancellation" clause.

  • Does the policy afford protection against rescission (for example, if the insurer attempts to rescind the policy based on misrepresentations in the policy application or financial statements accompanying the policy application)?
  • Does the policy include a severability clause that exempts innocent insureds from rescission of the policy based on misrepresentations made or known by other insureds? - Is there a provision stating that the policy is "nonrescindable", at least with respect to "Side A" coverage?

Special Circumstances

  • Directors and officers may be particularly vulnerable in the case of insolvency, a change of control as a result of a merger, acquisition or IPO, or retirement. Does the policy afford protection against these risks?

In anticipation of such risks, directors and officers should consider:

  • purchasing separate insurance;
  • purchasing run-off insurance;
  • arranging for non-cancellable insurance for a specified period of time; and/or - ensuring that limits and breadth of coverage will be maintained or renewed for a specified period of time by the applicable board or corporation.

Dispute Resolution

  • Is there an affirmative alternative dispute resolution clause with respect to disputes between the insurer and the insured?

Consideration should be given to whether it would be preferable to provide for the resolution of disputes by arbitration rather than by mediation and/or court proceeding.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions