Category Archives: Insurance

5 Common Sources of D&O Liability

Posted on January 20, 2017 by Marijana Dabic

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures. Regardless of your company’s size or mission, the legal costs associated with a lawsuit can be crippling for both the organization and your directors and officers.

This Risk Insights explores five of the most common sources of directors and officers (D&O) liability.

Employees

Most directors and officers are surprised to learn that their own employees are one of the most common sources of a D&O claim against their organization. In fact, for private businesses and non-profit organizations, employees are the most common source of D&O claims.

If employees are mistreated during any phase of their employment, they may bring their concerns to the organization’s management team. If employees feel that their concerns have been not been addressed in a sufficient manner, they may see legal action as a means of rectifying their grievances.

Common employment practices claims against directors and officers include the following allegations:

Wrongful dismissal
Discrimination, including workplace and sexual harassment
Breach of employment contract
Failure to address health and safety concerns

Government and Regulatory Authorities

Governmental and regulatory authorities exist to monitor the environment in which organizations operate. These bodies help ensure that directors and officers and the organizations they control conduct their activities in a fair and lawful manner.

Government and regulatory bodies monitor compliance with a broad range of laws, including the following:

Corporations law: Governs the ownership and management of organizations
Securities law: Governs the administration of publicly listed companies
Consumer protection law: Governs the way in which organizations distribute products and services to consumers
Occupational health and safety law: Ensures that organizations maintain a safe workplace
Taxation law: Governs the taxation of organizations and individuals
Environmental law: Ensures that industry participants adhere to environmental restrictions

For directors and officers, the enforcement power held by these bodies presents a significant exposure to D&O claims. If regulators discover that wrongful conduct has occurred, they may pursue legal action against the organization and the executives involved.

Competitors

As organizations attempt to grow their market share, management teams must ensure that growth is achieved through fair business practices. If an organization’s competitors believe that they have been unfairly disadvantaged by dishonest or illegal behaviour, they may seek recourse through legal action.

Directors and officers can be brought into legal actions for a range of perceived wrongdoings, including the following allegations:

Breaches of intellectual property
Misappropriation of trade secrets
Collusion
Anti-competitive behaviour

What’s more, directors and officers may also be held liable for actions that are perceived as misleading or defamatory, with claimants seeking damages for their perceived losses.

Creditors

The management team of an organization has the responsibility of monitoring the organization’s financial position and its ability to meet debt obligations as they become due. If an organization becomes insolvent, creditors will often scrutinize the decisions of directors and officers to see if they can be held personally responsible.

If debts are left unpaid when an organization goes into liquidation, creditors can pursue executives personally in an attempt to recover outstanding funds. Common allegations by creditors against directors and officers include the following allegations:

Breach of fiduciary duty
Breach of duty of due care
Negligence
Deliberate misconduct

Shareholders

Due to their financial investment, shareholders have an incentive to monitor an organization’s ongoing performance and ensure that directors and officers are acting with the organization’s best interests in mind. With potentially large sums of money at stake, if shareholders are not pleased with an organization’s direction, they may take measures to protect their investment.

If it appears that management has breached their duties to the detriment of an organization, shareholders may bring a claim against those directors and officers.

Ask Your Broker for Help

Whether you’re a non-profit, privately held or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, a professional broker is invaluable when you go to purchase D&O coverage.

Contractors Pollution Liability Insurance

Posted on November 17, 2016 by Marijana Dabic

Contractors, no matter what industry they work in, face environmental risks stemming from operations on a daily basis. For most contractors, a single pollution incident or loss can seriously damage their operations, balance sheet and even reputation. Making matters worse, pollution incidents can be sudden or occur gradually over time.

While many contractors assume that environmental claims will be covered under their commercial general liability (CGL) policy, the unfortunate reality is the most CGLs contain pollution exclusions that leave contractors uninsured in the event of a pollution incident.

Thankfully, contractors are increasingly turning to contractors pollution liability (CPL) insurance to ensure they have the right coverage in place to remain secure and profitable.

CPL Coverage Basics

CPL policies provide contractor-based insurance for third-party coverage for bodily injury, property damage, defence, and cleanup as a result of sudden and gradual pollution incidents arising from contracting operations performed by or on behalf of the contractor. CPL insurance is intended to provide coverage to all types of contracting operations, including contractors who are involved in building construction and environmental firms that remediate polluted sites.

CPL policies are offered on either a claims-made or occurrence basis. What’s more, CPL policies are non-standard, meaning each policy is different and can be modified to cover the various needs of the contractor purchasing the policy. Policies can be offered on a project or blanket program basis.

In some instances, CPL policies can also be used to cover losses from civil fines, penalties and punitive damages.

Covered Pollution Incidents

Contractors should keep in mind that CPL insurance policies differ in regard to the types of pollution incidents that are covered. Two important considerations when evaluating CPL insurance policies are:

Whether or not the policy will respond to gradual releases of pollutants, as opposed to sudden and accidental releases; and
The types of substances that are considered “pollutants” under the terms of the policy.

Generally, policies that cover both gradual and sudden releases of pollutants provide contractors with a broader scope of coverage. In addition, policies that provide a broad definition of pollutants are considered superior to those that contain a narrow definition. Accordingly, it is important that contractors work with their broker to find a CPL policy that is tailored to their needs.

CGL Pollution Exclusions

A primary reason why contractors obtain a CPL policy is due to the various pollution exclusions contained in most CGL policies. The pollution exclusions found in most CGL policies take one of two forms, either “absolute” or “total.”

CGL policies with an absolute pollution exclusion remove coverage for most pollution events that would occur in the course of an insured’s business operations. However, despite its name, an absolute pollution exclusion may preserve coverage for certain incidental pollution damages, products and completed operations liability, and certain off-premises work.

However, more commonly, CGL policies include a more restrictive “total pollution exclusion.” This type of exclusion effectively removes coverage for any event the insurer characterizes as a pollution incident.

Contractual Requirements

Contractual requirements serve as another motivating factor that lead many contractors to obtain a CPL policy. In many instances, project owners and general contractors will require contractors to obtain pollution insurance that meets certain, predetermined standards. From this perspective, having a CPL insurance policy in place can serve as an upfront sales tool during the bidding process that enables contractors to qualify for opportunities when such coverage is required.

Finding the Right Policy

Regardless of specialty, all contractors should be mindful of the pollution risks associated with their work. A CPL insurance policy can provide much-needed security in the event of a pollution incident, even in the most unlikely of circumstances.

CPL insurance is not only good for business, but it also provides peace of mind in industries that are full of surprises and risks.

Privacy and Health Disclosure Liability

Posted on September 22, 2016 by Marijana Dabic

Publicly held corporations must disclose information that may have a material effect on the company—and officer health is not among examples listed in the government’s definition of “material.”

As an officer or director at your organization, you have an obligation to disclose any information that might materially affect your company or affect investors’ decision to acquire or sell shares.

Personal privacy trumps disclosure obligations as long as you are able to continue performing your duties for the company—until you turn over your duties as a principal officer, you are not required to inform shareholders. However, shareholders will likely come to know of any health issues whether or not you disclose immediately.

Shareholder Litigation

There are two scenarios that could give rise to shareholder litigation should you choose to protect your privacy and not reveal that you are experiencing health issues. In both of these cases, stock price would have to drop dramatically to merit a shareholder lawsuit.

Shareholders could claim that the announcement of your illness came at the end of a period of misrepresentation and that the company had concealed information about your well-being for an extended period of time. In this case, plaintiffs would need to establish that the information was material.

In the event of your departure from the firm, shareholders could say more should have been disclosed prior to the leave, and that by not disclosing information, the stock price was artificially inflated.

In any case, if your company is highly dependent on you for proper functioning, if there is a doubt, the best practice is to disclose information about your health.

Your Right to Privacy

Disclosures are not necessarily required about officer health—and after all, it is difficult to decide at what point it is appropriate to disclose information. However, the issue is highly debated, and some believe that the potential harm an officer’s absence could cause the company constitutes a material effect.

Risk Transfer

Directors and officers (D&O) liability insurance will cover legal costs in the event of a shareholder claim. Both you and your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, an independent insurance broker is invaluable when purchasing D&O coverage.

Pokémon Go Liability Issues

Posted on August 24, 2016 by Marijana Dabic

Pokémon Go is a free-to-play game for iOS and Android devices. Since its debut, the game has exploded in usage, surpassing Twitter as the most popular app in the app store.

At its core, Pokémon Go is a game that uses a smartphone’s GPS and gyroscope sensors to determine a player’s location. Based on that information, the game displays a random variety of fictional creatures called Pokémon through the phone’s camera. The game also marks popular and prominent locations, such as parks, memorials and other frequently visited areas, as places where players can compete with each other and collect free in-game items. These areas are called Pokéstops and generally attract large crowds of players throughout a given day.

In essence, the goal of the game is to walk to various locations and catch as many of the Pokémon as possible. And, while the game may seem harmless, it carries a number of inherent risks—risks that you should be aware of in order to protect yourself and others.

Car Accidents

Because Pokémon Go requires players to be fixated on their phone screens, there’s an increased risk of auto accidents if people play this game while driving. This is despite distracted driving being forbidden in most provinces.

In fact, just a week after the game launched, a driver playing Pokémon Go sent two Quebec City police officers to the hospital after crashing into a police cruiser. And, that’s just one example—accidents caused by Pokémon Go have been reported all across Canada.

Drivers aren’t the only ones at risk of injury either. Pedestrians and cyclists should be mindful of their surroundings, as inattentive motorists playing Pokémon Go can pose a serious threat.

If you own a business that employs drivers, staff should be reminded of your driving policies and to never use mobile devices when operating a motor vehicle. Keeping in mind the basic rules of the road can keep both drivers and pedestrians safe when it comes to Pokémon Go.

Theft

As previously stated, Pokémon Go marks prominent locations as Pokéstops. It is at these stops where a player can collect items for free, and, if a special item (a “lure module”) is employed, attract Pokémon more easily.

When this lure module is used, nearby players that have their app open are notified and are likely to be drawn to the Pokéstop. By exploiting this method, thieves can attract Pokémon Go players to secluded locations and potentially rob them.

Pokémon Go players should refrain from playing the game late at night or alone. Whenever possible, stay in well-lit and high-traffic areas.

Business and property owners should be on the lookout as well for suspicious individuals to help protect themselves. The popularity of Pokémon Go has led to more and more foot traffic in areas that previously may not have been as active. This, in turn, has increased the likelihood of an incident like vandalism or burglary.

It’s important to note whether or not Pokémon Go is popular around your property, as this could lead to further concerns regarding theft.

Injuries on Personal or Business Property

Because Pokémon Go requires users to concentrate on their phone screens, it’s possible that they could become distracted and hurt themselves while playing the game.

And, in the event that a Pokémon Go user is injured on your personal or business property, you could be held responsible. That’s where property insurance can help.

Property insurance generally includes something called occupiers’ liability, which will ensure that you are equipped with the proper protection if a Pokémon Go player hurts him- or herself on your property.

For added protection, property owners are encouraged to post warning signs that highlight nearby hazards. Additionally, designating areas on your property as Pokémon Go-safe can help players further avoid injury.

Trespassing

Through the nature of the game, Pokémon Go players are encouraged to explore their surroundings. However, this can lead to them unlawfully breaking into spaces, which is a problem for both players and property owners alike.

The Royal Canadian Mounted Police (RCMP) has warned Pokémon Go players that they will be apprehended if they are caught playing the game in private areas. Players could also face fines if they are found in violation of Section 177 of the Canadian Criminal Code, which states: “Everyone who, without lawful excuse, the proof of which lies on him, loiters or prowls at night on the property of another person near a dwelling-house situated on that property is guilty of an offence punishable on summary conviction.”

Niantic, the company behind Pokémon Go, is now accepting requests for the removal of Pokéstops, which could dissuade players from certain areas. But it may not be enough.

Utilizing no trespassing signage around areas you do not want Pokémon Go players to explore can be a good first line of defence against unwanted visitors. Contact your local authorities if you believe a person is trespassing on your property.

Mitigating the Risk

There are a variety of risks inherent with Pokémon Go and they can vary in severity depending on your situation. In general, keep in mind the following safety tips:

Secure your property. Mitigate potential dangers, like trespassing and theft, by utilizing signage and fencing. Keep your car, business and house locked at night and ensure that expensive items are out of view.
Remove safety hazards. Examine your premises, looking for any hazards that Pokémon Go players could injure themselves on. Focusing on areas of high traffic can also help identify common hazards.
Report issues. If you see an individual using Pokémon Go while he or she is driving or if you are concerned about player safety for any other reason, contact your local authorities. They can help address any issues and take action if necessary. This will help keep Pokémon Go users safe and can prevent issues from worsening.

Pokémon Go isn’t likely to decrease in popularity anytime soon, and it’s important for businesses, players and community residents to be aware of common liability risks associated with the app. Doing so can help prevent a catastrophe before it occurs.

Understanding Construction Contracts

Posted on August 10, 2016 by Marijana Dabic

Construction contracts can contain terms that impact your company’s bottom line. Reviewing them carefully prior to signing is indispensable, and can save your company time and money. This contract review guide is meant to be a starting point for reviewing contracts in general. It highlights some common contract terms and their potential impact. You can begin to understand which terms are most often negotiated in contracts. Then, with the help of licensed inside or outside counsel, you can analyze the commercial risks associated with construction contracts in depth and understand terms and conditions in order to protect your company’s assets.

Scope of the Agreement

Examine the definition of services to be provided in order to ensure the language is clear enough for an unrelated third party to understand the scope. The contract should include a time frame for completion of services. The rights and obligations of both parties should be clearly outlined. Any mechanism for changing the scope of the contract, as well as any of the terms, if allowed, should also be outlined within the contract

Terms of Payment

Terms of payment should be clearly listed within the contract so that the expectations of both parties are clear. The contract should specify the agreed payment schedule for goods received.

Warranties

There are two types of warranties: express and implied. Both types are assurances regarding particular issues, such as performance.

Express warranties are those that are defined specifically in the contract. Implied warranties are based in statutory and/or common law, depending on your jurisdiction.

They are two-fold: a warranty of merchantability, which requires that goods/services must reasonably conform to an ordinary buyer’s standards, and a warranty of fitness for a particular purpose, which states that if a seller knows the intended purpose for the product or service, the act of selling the product to that customer implies that it is fit for that purpose.

Be aware of warranty disclaimers and understand how the disclaimer limits your statutory rights. If it disclaims all warranties, express and implied, then you will likely be limited to the remedies in the contract for issues related to things like performance. You should also examine any disclaimer in the context of the contract. While it may require you to disclaim your statutory rights, other contract language may give you adequate rights and remedies regarding the points about which you are most concerned.

Damages, Limits of Liability and Indemnification

These three items are often in close proximity to one another in a contract, as they are interrelated. Damages may be defined as certain types of losses that could create liability under the contract. A limit on liability would restrict the amount of damages that a party would be required to pay if found liable for such damages. Sometimes this may also include a limit for indemnification.

Indemnification provisions allocate risk and cost between the parties. It is important to examine whether the party assuming the risk is the party with the most control over that risk. For instance, when a company’s employees are required to work at a customer’s location, the company is often asked to release the customer from all liability relating to the employees’ presence at the customer’s location.

In some cases, indemnification is limited to negligence or to a specific dollar amount, under a heading of “Limits of Liability.”

Insurance

Some contracts will contain minimum bodily injury and property damage liability coverage amounts that the party must possess and they also may require that customers are added as an additional insured on those coverages.

Prior to consenting to any contract, it is prudent to examine insurance coverage against the amount of liability exposure in a particular contract.

Terms and Conditions

Governing Law and Jurisdiction – Look at the governing law provision to make sure that you are comfortable with the implications of the provincial law chosen by the drafter. This can impact the interpretation of the contract from warranties to indemnification.

Additionally, when specific laws are referenced in the body of a contract, it is as though that statute or regulation is wholly contained within the contract itself. It is vital to read and understand that language prior to giving your consent. This happens regularly in government contracting situations.

Dispute Resolution – This is another clause with which you must be comfortable with the laws of the province or forum chosen by the drafter. The rules chosen to govern dispute resolution can impact the outcome. Additionally, you should consider whether dispute resolution is right for your situation.

Intellectual Property – When you are disclosing and/or licensing your company’s intellectual property, be it trademarks, copyrights or patents, it is important to include a clause that recognizes the owner of such intellectual property and affirmatively states that the agreement does not transfer any rights.

Standard of Care – A standard of care clause may appear in certain types of contracts. The standard of care that is provided by the law should provide the minimum standard of care for the provision of services under the contract.

Term/Termination – The contract should provide both parties with the right to terminate the contract. The situations in which termination is allowed will vary from contract to contract. Some contracts will allow the right to terminate in cases of dissatisfaction; others will allow it with a specific notice, for no cause. It is important that you consider in what cases you would want the right to terminate the contract. There should also be language defining the term of the contract. Does it have a finite term? Does it automatically renew each period?

Right to Cure – Related to termination, some contracts will contain a right to cure clause. This would give the defaulting party notice of a breach and a finite period of time in which to remedy such breach.

Standard Form Contracts

Contracts produced by professional and trade associations for architects, engineers and commercial contractors can serve as important references and benchmarks when drafting a new construction contract. They are a good source of industry best practices, and using them can greatly reduce drafting and review time, meaning lower overall transaction costs for your company.

For all of their advantages, there are several things that you should be cautious about when using standard form contracts. Note the following cautions about standard forms before using them.

Standard forms, which are written broadly to encompass many different contexts, require transaction-specific and jurisdiction-specific modifications. For example, certain provinces may require that indemnities be written in a certain way.
Changes made to one part of the document, such as definitions of words or terms, may affect other parts that make reference to it.
Custom-drafted and industry-drafted forms are often incompatible. Even industry-drafted forms from different publishers can be incompatible.
Standard forms always contain the bias of the drafter. Use this bias; know when to use various standard forms published by different industry organizations.

General Understanding

Reviewing general terms and features of a construction contract will help you grasp the consequences of its terms and conditions for your business. In any case, to ensure its completeness and accuracy, it is necessary to submit each contract you must sign to legal review.

Category Archives: Insurance

5 Common Sources of D&O Liability

Contractors Pollution Liability Insurance

Privacy and Health Disclosure Liability

Pokémon Go Liability Issues

Understanding Construction Contracts

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