Run-off insurance is a particular aspect of director and officer
liability (D&O) insurance that can protect
directors and officers of a target company following an M&A
transaction. In many cases, a target company's directors
and officers will resign from their roles following an acquisition.
Run-off insurance (also known as closeout insurance or run-off
cover) protects directors and officers from claims made against
them after they have stepped down.
D&O insurance will protect acting directors and officers,
but it does not necessarily cover former directors and
officers. Former directors and officers could be unprotected
if they don't have some type of contractual indemnity in place.
Run-off cover allows parties to buy insurance for departed
directors and officers without the use of a director or officer
Although the details of a run-off insurance policy may vary
across providers, run-off insurance usually covers a specific
period of time following the transaction – generally 6 years.
The term of the run-off insurance is called the
"run-off". So long as a claim against the former director
or officer is first made during the run-off period, it is covered
by the insurance (regardless of whether the underlying event took
place before or after the acquisition).
Run-off insurance can form part of a comprehensive D&O
insurance policy or can be purchased separately as an add-on to an
existing policy. It can also be purchased as a stand-alone policy
and from a third party insurance company. Often, if run-off
insurance is added on contemporaneously to an M&A transaction,
the cost of the policy is paid for as part of the transaction.
However, depending on the hostility of the transaction, the target
company or the directors and officers may cover the cost of the
Parties interested in obtaining run-off insurance following an
M&A transaction should consider: whether there is an indemnity
or insurance policy already in place to cover post-transaction
claims; the length of the run-off needed; and the length of the
statutory limitation period in the applicable jurisdiction. All
this can inform the decision to obtain run-off insurance.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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