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With the rise in security class actions, it is important for Canadian companies to examine their liability insurance coverage.  According to Alan D’Silva, an attorney at Stikeman-Elliott, about 60 percent of Canadian public companies have director and officer insurance. This is considered to be inadequate. This vital type of insurance covers misrepresentations and failure to effectively disclose information on the part of the company.

Mr. D’Silva said he sees 4 common problems with the coverage:

1.       Companies’ limits are extremely low considering their presence in the market. They simply need more insurance to cover their assets.

2.       When reviewing their policies, there are some exclusions that are unsuitable or even outdated. One case D’Silva reviewed even referred to U.S. regulators, even though the company didn’t trade there.

3.       Policies often only cover directors and officers, not the corporation as a whole. Putting the extra coverage is not that difficult and really does not cost that much more, according to D’Silva. In many instances, it just means adding an endorsement to the existing policy.

4.       The cost of defense, when sued, also comes out of the policy. Many directors and officers are not aware of this fact. Unfortunately, that is one thing that companies don’t know until they get sued. If funds run low because of low coverage, then it can limit the legal representation and tactics that the attorneys can use to help the companies.

Currently in Canada there are $14.2 billion in outstanding claims, according to NERA Economic Consulting.  Director and officer liability insurance coverage premiums are based on risk.  Financial institutions and biotech companies usually have higher premiums than commercial companies.

Tags: Business, Commercial Insurance, D&O Insurance, director and officer, director and officer insurance, international, international insurance