Private and not-for-profit companies benefit from management liability coverage

Many not-for-profit and privately held companies may be under the false impression that they have no need for management liability insurance. However, these organizations face many of the same new and increasingly complex management liability exposures as their public counterparts, including a variety of directors and officers risks.

Directors and officers – whether in public, private or not-for-profit companies -- could be exposed to litigation alleging breach of common law duties, breach of duties owed to shareholders, and/or statutory liabilities imposed by federal or provincial laws. They can also be held personally liable in cases where the employer is not legally required to indemnify them.

Directors and officers are held to certain core fiduciary and other responsibilities and duties. For example, under the Canada Not-for-profit Corporations Act (NFP Act)¹, directors are required to remain informed about the corporation's activities and to ensure the lawfulness of the articles and the purpose of the corporation.²  Further, directors and officers must act honestly at all times, in good faith and in the best interests of the corporation and they must abide by a duty of care that requires them to exercise at least the level of care and diligence that a reasonable person would exercise in similar circumstances³; these duties are the same for directors and officers of federally incorporated private companies under the Canada Business Corporations Act (CBCA)⁴.  Alleged or perceived breaches of these duties could result in lawsuits from potential claimants such as vendors, customers, creditors, competitors or employees.

Management liability losses also go beyond the directors and officers and can be substantial, especially for small to medium-size businesses. Here are a few claims examples, which can happen to any size firm: 

• A company terminated a long-term tenured executive, alleging family members were included under that company’s paid car allowance and the company was invoiced without its permission. The executive claimed more than $400,000 in damages against the employer for unpaid wages, severance and lost benefits, as well as punitive damages. 
• A hospital client of a pharmaceutical firm alleged it was overbilled by nearly $1 million by the firm for pharmaceuticals that were delivered in staggered batches rather than in one delivery. The pharmaceutical firm took the position that staggered deliveries were a standard practice due to the short time frame of the active ingredient in the product and it was the only way to ensure the product remained viable.

Firms are also vulnerable to employment-related claims for harassment or mismanagement, and can face claims that arise from scenarios where management never actually did anything wrong. Management Liability coverage for private and not-for-profit companies is a solution that can help address these typical exposures:

Employment Practices Liability: Common allegations include discrimination, wrongful termination, and sexual harassment.

Customers/Clients/Consumers: Common allegations include discrimination, civil rights violations, and false or misleading statements (in advertising).

Competitors/Suppliers/Vendors: Common allegations include infringement of intellectual property, competition law violations, breach of contract and other unfair competition.

Shareholders and Lenders: Typical claims include misrepresentation, inadequate disclosure in financial reporting, breach of the duty of care (in the sale of the corporation) and breach of the duty of loyalty (deals entered with companies owned by one of the directors or officers).

Regulatory Bodies: Fines or suits from regulatory bodies or government entities.

CNA Epack Extra is a Market-Leading Solution

CNA’s Epack Extra is a market-leading and flexible package of management and professional liability coverages designed to help private and not-for-profit firms manage and mitigate these risks.

Epack Extra’s coverages give policyholders the option of combining two or more coverage parts in a multiline package, or they can choose a policy with a single coverage part. Coverages include Crime,  Directors & Officers (D&O) Liability, Employment Practices Liability (EPL), Fiduciary Liability, Miscellaneous Professional Liability, Media Liability, Technology & Telecommunications Liability and more.

There are a variety of situations where a corporation cannot, or will not, indemnify its directors and officers, including:

• Inability to indemnify: Insolvency
• Derivative Action: Where indemnification is not permitted in certain jurisdictions
• Statute and Bylaws: Can preclude indemnification for certain acts

Epack Extra provides Side-A coverage to directors and officers for non-indemnified losses, (such as the case of a bankruptcy of the entity), indemnifiable losses (covering the entity for amounts paid on behalf of Insured Persons pursuant to statutes or bylaws), and entity coverage for broadly defined wrongful acts.

Eligible policyholders can also receive complimentary legal assistance through the HR Help Line, provided by a leading national labour and employment law firm, which advises employers on all aspects of workplace law.

CNA policyholders’ human resources representatives can call the CNA toll-free line at 844-378-6580, identify the company as a CNA EPL policyholder and provide the company’s policy number. The call will be returned by a lawyer who can provide general information regarding employment laws and risk control strategies.

For more information on Epack Extra visit cnacanada.ca.

¹ Canada Not-for-profit Corporations Act (S.C. 2009, c. 23) (NFP Act)
² S. 148 (3) of the NFP Act; See https://corporationscanada.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs05004.html#toc-08
³ S. 148 (1) of the NFP Act
⁴ Canada Business Corporations Act (R.S.C., 1985, c. C-44) (CBCA); s. 122 (1) of the CBCA ; See https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs06643.html#toc-02

DISCLAIMER

One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. Read CNA’s General Disclaimer.

To access all other 2019 blogs: https://www.cnacanada.ca/web/guest/cnacanada/about/listofauthors

Abena began her insurance career in 2008 and has since gained diverse experience across personal, commercial and specialty lines of business. In her current role, she is responsible for underwriting renewal and new business for Private/Not for Profit and public companies seeking Management Liability coverages. She also oversees a co-op program designed to provide business students with hands-on management liability underwriting training.

Abena is a graduate of the Global Professional Master of Laws Program and holds the Canadian Risk Management and Registered Professional Liability Underwriter Designations.