Canada: Indemnities, Insurance And Compensation For An Independent Review Committee

Last Updated: July 5 2006
Most Read Contributor in Canada, November 2017

Managers of investment funds will have to address concerns relating to the personal liability of IRC members if they hope to attract and retain the most qualified individuals for their IRC. In addition to understanding the scope of their potential liability for breach of the standard of care mandated by NI 81-107, IRC members will want to understand the indemnification and insurance coverage available to them. Another "necessary evil" will be the compensation of the IRC members. We expect that NI 81-107 will be released as a final rule later this summer – this Practice Bulletin assumes that the final version of NI 81-107 will be substantially the same as the last version published for comment.

Indemnities: Even the most diligent IRC member, who by any objective standard has appropriately discharged his or her standard of care in respect of a particular matter, will be concerned about being sued. Litigants typically name everyone remotely connected to a matter in dispute in the hopes of recovery from someone. Even an IRC member with an ironclad defence to a claim may well incur significant legal expenses defending the action. IRC members will be concerned about this exposure and may want the right to retain separate counsel if their defences differ from those of the manager and the other defendants.

This brings us to the issue of indemnities. An investment fund and a manager may indemnify an IRC member, a former IRC member and his or her legal representatives only where the following indemnification standard is met:

  1. the member acted honestly and in good faith, with a view to the best interests of the investment fund; and
  2. in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the member had reasonable grounds for believing that his or her conduct was lawful.

NI 81-107’s indemnification standard restricts the ability of a fund and the manager to indemnify an IRC member and is generally consistent with other regulatory provisions relating to investment funds such as section 4.4 of NI 81-102. It is worth noting, however, that clause (b) above introduces an additional element not found in the IRC’s standard of care in NI 81-107 nor in section 4.4 of NI 81-102 that may make it more difficult for an IRC member to claim a right to indemnification in certain instances. Applying NI 81-107’s indemnification standard to the indemnities from both an investment fund and its manager will have interesting ramifications, including in some cases the scaling back of existing indemnities. We are aware of indemnities given by fund managers or their parent companies to members of bodies similar to an IRC that are considerably broader than the indemnity a manager is permitted to give under NI 81-107. Imposing the NI 81-107 indemnification standard on the manager’s indemnity also has an important impact on insurance – leaving more of a gap to be covered by insurance that will likely drive up the cost of insurance.

Questions to consider are: Is it appropriate to provide the two indemnities? Can another entity in the manager’s corporate group provide an indemnity and, if so, must NI 81-107’s indemnification standard apply to limit its scope? What is the appropriate limit to each indemnity, if any? The CSA’s commentary notes that any indemnities given should be on "reasonable commercial terms" – What will this mean in practice? How do multiple indemnities dovetail so that someone knows who pays what and when? How does the provision of indemnities fit with insurance coverage? How would a claim under the indemnity given by a fund impact the fund’s NAV?

We expect indemnities will cover the full range of costs and expenses permitted by NI 81-107, including advances. Coverage for advances will be important to an IRC member as any type of civil, criminal or regulatory proceeding can extend over a long period of time and the IRC member will want to ensure his or her expenses are being met along the way. If in the end the IRC member is found not to have met NI 81-107’s indemnification standard he or she will be required to repay the advance.

NI 81-107 will give an IRC member the right to claim an indemnity from the fund and the manager even where the fund or the manager has not actually given one, if the IRC member has been found during a proceeding to have done everything he or she ought to have (including not omitting to have done something) and to have met NI 81-107’s indemnification standard. So even if an IRC member does not insist on an indemnity from the fund and/or manager upon becoming an IRC member the fund and manager are not necessarily out of the woods with respect to indemnifying that IRC member. Does this weigh in favour of providing a written indemnity from the outset to clearly establish its scope?

Insurance: An investment fund and its manager may purchase insurance to insulate IRC members from liability incurred in their capacity as IRC members. Insurance goes hand in hand with indemnification – among other things, insurers will want an IRC member to look first to the indemnities.

NI 81-107 does not impose a "standard of care" condition for insurance similar to NI 81-107’s indemnification standard leaving open to debate the appropriate limits of coverage. It is clear that a fund can pay the insurance premiums that are an obvious consequence of the fund providing insurance coverage to IRC members. While the rule itself does not address the extent of coverage or the quantum of premiums, the commentary indicates that the CSA expects coverage to be on "reasonable commercial terms". What will this mean in practice? Is a manager properly discharging its standard of care to offer a fund indemnity without also getting insurance? If both the manager and the fund provide insurance how will the two policies interact? Will IRC members insist upon their own direct coverage? Could the nature of the insurance obligations open up the manager to allegations of breach of its standard of care?

We note that certain insurers are developing policies specifically tailored for IRCs. While these are not yet publicly available, a fund manager may wish to consider these policies rather than simply accepting modified D&O/E&O coverage from its usual insurance broker and insurer.

Compensation: What is the appropriate level of compensation in order to attract quality IRC candidates? The IRC must have the authority to set its own reasonable compensation. We expect that the regulators will encourage the IRC to consider the manager’s recommendation on what would be reasonable compensation. Could a manager be criticized for not playing a role in this process or for recommending compensation that is later seen as overly generous? The corresponding amendments to NI 81-101 will require transparent disclosure of compensation. Will the marketplace appreciate that members of certain IRCs should receive more compensation than members of other IRCs to adequately compensate them for the greater amount of work involved, the complexity of the issues, and, yes, greater liability exposure than would be common to all IRCs? Under NI 81-107 these amounts must, at least initially, be paid by the fund. However, NI 81-107 will allow a manager to reimburse a fund for amounts paid to the IRC provided this is made transparent through prospectus disclosure. If this is done, how will it be perceived? Favourably – keeping the fund from bearing an expense? – or – unfavourably – creating an unholy alliance with the IRC members?

Documenting decisions made by fund managers, including reasons for those decisions, will be very important in this area of indemnities, insurance and compensation.

What’s next? Please watch for our next Practice Bulletin in BLG’s Countdown to Governance series – Practice Bulletin No. 4 will cover what you and your IRC need to do to get started. Please contact your usual lawyer in BLG’s Investment Management Group if you have any questions about NI 81-107 and the matters outlined in this Practice Bulletin.

The content of this article is intended to provide a general guide to the subject matter. Specialist 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
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