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.

In association with
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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