In the recent past, a multitude of Canadian directors and officers have been sued. Although the news media typically only cover the larger suits, all segments of Canadian business have instances of claims, and smaller privately held corporations are no exception.
If your corporation is a small or medium sized entity that is privately held, consider the following claims scenarios, all of which are mitigated by a directors and officers insurance policy.
1. Bankruptcy – Statutory Liability
Poor economic times contributed to the gradual financial deterioration of a regional chain of hardware stores. By the time the company fell into bankruptcy, it had accumulated significant statutory liabilities, including unremitted source deductions (EI, CPP) and unpaid retail sales taxes. The relevant federal and provincial authorities served notices on the insured directors of their obligation to pay these amounts. Despite the filing of a due diligence defence, a settlement was reached.
Defence costs incurred by the insurer: $52,000.
Read more: How Directors and Officers Insurance is the ultimate nonprofit risk management tool
2. Employment Practices
A former employee brought an action against his former employer and manager for constructive dismissal. He alleged that his manager had undermined his authority with the rest of the staff by criticizing his work and mannerisms to his colleagues. In his last performance review, the manager had told him that he was not performing to the company’s standards and that he had better improve. The employee left his job and now claims that he was constructively dismissed by the manager’s creation of a hostile, unprofessional and unpleasant work environment. After a prolonged legal battle, the action was ultimately settled by the company.
Defence costs incurred by the insurer: $110,000.
3. Employment Practices
A former employee of a manufacturing business filed a complaint under the human rights legislation alleging that she had been discriminated against because of her race, colour, ancestry and ethnic origin. She claimed that the company never promoted employees of her ethnic origin, but gave preference to those who shared the ethnic origin of the owner. She succeeded in her complaint and was awarded damages for lost wages.
Defence costs incurred by the insurer: $65,000.
4. Misrepresentation
An employment agency entered into a joint venture with a consultancy company to bid on a large human resources advisory contract with a quasi-governmental organization. The senior managers of the consultancy company represented that they had the number of type of staff qualified to complete the contract. After being awarded the contract, the employment agency suspected that the consultancy company had misrepresented the qualifications of its staff. The agency forced to hire additional staff to be able to complete the contract. After the contract finalized, the agency sued the consultancy company’s officers for damages arising out of the misrepresentation.
Defence costs incurred by the insurer: $85,000.
5. Employment Practices
A dismissed employee brought an action against his former employer who had terminated his employment based on his poor work performance and absenteeism. He alleged that he had been dismissed in retaliation for rallying a group of staff members to object to the company’s dress code.
Defence costs incurred by the insurer: $45,000.
