Gavel

In This Issue: Escalating Management and Directors Liabilities

Next week on May 13th, I will be on a panel addressing Directors Liabilities at a session being put on by the Institute of Corporate Directors. I’d encourage you to attend. The session will cover strategies for directors to limit their liabilities by making sure they take appropriate steps, by not only fulfilling their fiduciary duties, but also ensuring they have appropriate liability insurance coverage to protect themselves (register).

Further, a new study has been released by the Chubb Insurance Company of Canada which scopes the state of Management Liabilities in Canada.  Directors are often enjoined in suits naming management. In its recently published 2013 Survey of 302 Canadian Private Companies, 52% of senior management had experienced an “event” with respect to management liability exposures in the last 3 years. 84% reported awareness of risk and/or losses with respect to management and professional liability. The exposure is higher with public companies.

In order of significance, the respondents feared financial loss from:

1)     Employment Practices, i.e. wrongful termination, discrimination, harassment in the workplace;

2)     Errors or omissions lawsuits, meaning negligence in service provision causing financial loss to a third party;

3)     Employee Theft- Theft of funds, equipment, inventory, or merchandise from the company or a client;

4)     A D&O lawsuit, for misrepresentation, mismanagement, negligence in oversight of the company/operations, tortious interference;

5)     Cyber liability, i.e. breach of privacy with respect to confidential information, notification to affected individuals.

Some relevant survey information:

  • 33% of private company decision makers said they are concerned about a lawsuit against the company’s directors and/or officers filed by a vendor, competitor, government or regulatory agency;
  • 14% said that a D&O lawsuit would cause the significant financial loss to the company;
  • 21% of claims were over $100,000;
  • The largest loss in the study was $500,000 reported by a company between 100 and 249 employees;
  • 50% of losses were to companies sized 25 to 100 employees, and losses ranged up to $250,000 for this group.
  • The average loss reported amongst companies sized 50-99 employees was $105,000.

 

The report provides case studies of closed claims relative to the above mentioned situations, and others (read more).