What does directors' and officers' liability insurance cover for Ontario corporations?

Directors' and officers' (D&O) liability insurance is a specialized policy that protects individuals serving as directors and officers against personal financial loss arising from claims made against them in their corporate roles. A standard D&O policy has several coverage components: individual coverage for the director or officer when the corporation does not or cannot indemnify them, corporate reimbursement coverage that compensates the corporation for indemnification it paid on behalf of a director or officer, and in some policies, entity coverage for claims made directly against the corporation.

D&O policies typically cover defence costs, settlements, and judgments arising from alleged wrongful acts — which the policy will define, generally encompassing breaches of duty, errors, omissions, misstatements, and misleading statements made in their corporate capacity. Exclusions commonly include fraud, intentional criminal conduct, personal profit obtained improperly, and bodily injury or property damage claims (which fall under general liability policies).

D&O insurance becomes particularly important when the corporation is insolvent and cannot fund its indemnification obligation. In that scenario, the insurance may be the only source of protection for a director who acted properly but is named in a claim. Premiums and coverage terms vary widely. For small private Ontario corporations, D&O coverage is often affordable and well worth obtaining before a director faces a claim. A lawyer can help ensure the scope of coverage aligns with the director's actual liability exposure.