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When disaster strikes…top up your D&O liability coverage

Company directors and officers sometimes find their personal assets are at risk when D&O coverage protecting the company run out.


Technology is playing an increasingly important role in manufacturing – from internal business processes to external customer service. Supply chains, too, are becoming highly sophisticated and vital to a company’s competitiveness.

But when a manufacturer of any size encounters a crisis such as data breaches, corporate insolvency or large-scale environmental contaminations, members of the company’s senior executive may find their personal assets at risk when the limits of their existing directors and officers (D&O) liability insurance coverage are exposed.

In Baker v. Ministry of the Environment (a recent Canadian environmental case), the Ontario Divisional Court ruled a group of directors must personally contribute to the costs associated with cleaning up contaminated land. The company did have a D&O policy, but it expressly excluded coverage for claims related to environmental incidents. Since the company had become insolvent, it could not actually afford the remediation costs ordered by the court.

Many executives fail to see the value in this kind of policy, and rely solely on the balance sheet to finance all forms of loss. Some believe a modest policy limit with “all the frills” is enough, but that isn’t always the case.

Historically, the traditional D&O policy was written to insure both the entity and the directors and officers who serve it, but all insured parties share such coverage. Statistically, claims brought against the entity are more common, more complex and more costly to defend than those brought against individual directors and officers. In fact, certain types of claims can erode an entire policy limit, leaving the personal wealth of directors exposed to loss.

But a Side A Differences-in-Conditions (DIC) insurance policy bridges the gap between unavailable corporate indemnification, an unresponsive or exhausted underlying D&O policy, and the personal assets of directors and officers.

The insurance value is threefold: limits can never be accessed by the entity, they’re dedicated to the directors and officers who serve it; it provides an excess layer of D&O coverage; and its DIC triggers a last line of defence when executives need it most.

The real value lies in the policy’s ability to attract and retain highly qualified corporate executives and board members.
As corporate governance continues to evolve, creating and complicating risks to companies of all sizes, policies must adapt to these changing conditions. Support top talent by investing in the right insurance product.

Ryan Seager is senior underwriter, executive and management liability with RSA Canada, a general insurer based in Toronto. It offers a DIC product called Ironclad.

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