Staying off the Hook? Think Again!
The D&O Liability landscape has become complex, challenging and ever changing.
- With significant new case law developments and a growing number of aggressive litigants, it is becoming more hazardous to be a director and officer of a charity or not-for-profit association.
- Recent judgements and legislative changes in Canada have expanded D&O liability in the areas of negligence, tax, environmental claims, bankruptcy and third party claims among others.
New Developments in D&O Liability
Sanctions, Tax Laws Tighten Reins on Charities
(as reported by the Globe & Mail, March 25, 2004)
Canadian charties are about to undergo the biggest overhaul in decades, as a result of provisions announced in the federal budget.
For the first time, non-profit groups such as social clubs, networking groups, foundations, etc., will face santions for an array of misdeeds, ranging from failing to file annual reports on time, to paying exorbitant salaries to managers. Charities will also be subject to a form of taxation and there will be new rules governing how much they have to give away every year.
The public will also be given greater access to financial statements and other documents registered charities file with the government.
"These are the most significant changes in at least 25 years," said Malcolm Burrows, chairman of government relations for the Canadian Association of Gift Planners, which represents fundraising executives.
Fact:
Do you think that 'only' elected directors are subject to director's liability? Think again. Two recent tax law decisions have expanded the definition of who is a director to include those individuals who were 'acting in the capacity of' a director even though they were not legally a director.
Fact:
In February 1999, the Ontario Court of Appeal ruled that directors and officers could be held personally liable while acting in the course of their duties to the charity or association.
This ruling is another step in a series of developments that have broadened the scope of D&O liability.
Fact:
Directors are not expected to be experts in all aspects of the charity or association. It is assumed that they will rely on information, such as financial statements, prepared by executive officers or managers of the charity or association. However there are conditions, such as due diligence, which directors must meet to justify their reliance on the information they receive.
Typically, to 'trigger' a 'loss' there is a breach of duty, neglect, error, misstatement, misleading statement, omission, or other act done or wrongfully attempted by "you" or so alleged by a claimant.
Are You Covered?
- For allegations of mismanagement of organization assets?
- For breach of financial disclosure requirements?
- Against charges of discrimination or wrongful dismissal?
- For breach of regulatory requirements?
The increased potential for personal liability should be a major concern of all directors, officers, and executives of charities and not-for-profit groups.
Comparing CAP to your current insurance
In order to accurately compare the annual premium of CAP to your existing insurance expenses, you will need to consider your organization's:
- Commercial General Liability Policy
- Directors and Officers Liability Policy
- Property (including contents) Policy
- Crime Insurance Policy,
CAP is a comprehensive insurance program that combines all of these insurance requirements in one complete insurance package.
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