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I have heard that the liability exposure for Directors and Officers of companies is increasing. Is this true?
Yes, according to Christopher Mutcheson, Head of Directors and Officers and Financial Lines Canada for Allianz Global Corporate & Specialty Insurance, the liability landscape for directors & officers (D&Os) is increasingly fraught with risk. Since the 2008 global financial crisis, governments have sought to hold D&Os personally liable for the actions or inactions of the companies they govern. He goes on to say that the top cause of D&O claims is the non-compliance with laws and regulations, followed by negligence and maladministration. Actions against directors and officers are being dismissed or resolved more slowly. This results in lengthier litigation and higher settlement expectations.
In addition to all of this, there are two areas of evolving risk in Canada. Firstly, environmental cleanup costs are once again being assessed against D&Os personally. Under new laws, there are no defences. "Directors and Officers will be unable to claim that they did not cause the contamination or are not at fault. Their liability is absolute," says Mutcheson.
The second evolving risk is Administrative Monetary Penalties. These penalties are explicitly framed in legislation as "non-criminal" and "non-penal." They are meant to encourage compliance, not punish. These penalties are becoming increasingly popular and are being used in a host of legislation including Canada’s Anti-Spam Legislation, immigration compliance regulations for employers and environmental legislation across the country. These penalties may not trigger coverage from D&O policies. While directors and officers currently rarely face personal liability under these impositions, it is expected that the use of penalties will increase and D&O policies will have to respond. Growing public concern over the conduct of corporations, the quality of oversight by D&Os and the increasing awareness of the importance of environmental protections means that D&O policies must cover ever-more complex risks. BL