Directors and Officers Insurance – An overlooked liability for contractors

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By Paul Christi

Special to the GTA Construction Report

The business challenge

There is one critical area that is often overlooked when contractors assess risk to their business.  Construction companies will insure tools and equipment with a risk factor of a few thousand dollars but there is a much larger and crippling risk to not only their business but a risk for which they can be held personally accountable.  This type of risk can severely impact a corporation’s finances as well as their business reputation. This is often due to a lack of understanding, knowledge or expertise in the risk analysis by their insurance advisor.

This area of risk involves employees who are the life blood of any organization, especially in construction trades.  They are critical because no project can take place without ‘feet on the ground’. Each assignment is different and requires not only a professional skill level but also adherence to mandated safety protocols.

Imagine an employee injury or even worse, a fatality on site. The Ministry of Labour will launch an investigation that may result in fines and penalties which can be, and most often are, massive.  These fines and penalties are not insurable!  Aside from any court-related settlements, fines or damages, the legal costs for any lawsuit against owners, executives or board of directors of the organization can be enormous.

The solution

Directors and Officers Insurance will protect against these liabilities and risks.  This type of policy protects the personal assets of a company’s directors and officers, as well as the company itself. Directors and Officers Insurance also provides reimbursement to the company when indemnifying its directors and officers and will pay for legal defense costs, settlements and awards when defending directors and officers from a valid claim.

This is only one example of the benefit of this coverage. Below are some of the statutes that can give rise to a potential personal liability to a director and officer:

  • Ontario Business Corporations Act
  • Canada Business Corporations Act
  • Income Tax Act (Federal)
  • Unemployment Insurance Act (Federal)
  • Canada Pension Plan Act (Federal)
  • Income Tax Act (Ontario)
  • Goods & Services Tax legislation (Federal)
  • Retail Sales Tax Amendment Act (Ontario)
  • Occupational Health and Safety Act (Ontario)
  • Environmental Protection Act (Ontario)
  • Ontario Water Resources Act
  • Pesticides Act (Ontario)
  • Transportation of Dangerous Goods Act (Federal) and Dangerous Goods Transportation Act (Ontario)
  • Employer Health Tax Act (Ontario)
  • Employment Standards Act (Ontario)
  • Pension Benefits Act (Ontario)
  • Construction Lien Act (Ontario)
  • Canadian Environmental Protection Act (Federal)
  • Fisheries Act (Federal)

There is no “standard form” of coverage for Directors and Officers Insurance. Each insurer has unique wordings and optional coverage endorsements which should be examined for understanding of coverages.

The cost for this protection is minimal to mitigate the potential risk and liability of these scenarios.  Over the past few years the market has seen the cost of obtaining this coverage decrease. Many insurance companies can provide a quotation by simply providing limited information.

Understanding your personal and corporate liabilities is imperative to protect businesses today.

Paul Christie (CRM), is practice leader of the construction risk services division of Dan Lawrie Insurance Brokers Ltd., and can be reached at (800) 661-1518 or by visiting www.danlawrie.com.

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