A persistent hard market for directors and officers (D&O) liability insurance has made finding adequate coverage difficult. And for organizations domiciled in Quebec, it has been next to impossible.
Significant litigation and monetary settlements far beyond insurance policy limits1 have created an environment in which organizations struggle to obtain affordable D&O coverage. However, the new regulation created after the passage of Quebec Bill 82, which took effect May 6, 2022, provides some relief.
The regulation exempts some companies’ liability insurance contracts from a requirement that carriers must pay for their policyholders’ defence “in addition to” the insurance policy’s indemnity limits.
While the language had been in place for decades, in recent years class-action litigation and high settlements have forced insurers to pay millions above policy limits in defence costs.
The result has been carriers refusing to write D&O policies in Quebec and public companies threatening to redomicile elsewhere.2
The regulation offers some litigation relief
Under the new regulation, insurance contracts for prescription drug manufacturers and a few investment funds are exempt from the requirement that defence costs above policy limits must be covered by the insurer, with the intent that they will be able to secure adequate D&O coverage at premiums they can afford. The regulation also exempts reporting issuers under the Securities Act, foreign businesses and companies with sales above $10 million a year from the defence costs provision if they carry civil liability insurance with coverage limits of $5 million or more.
Making the most of the regulation allowed by Quebec Bill 82
Although the regulation reigns in potential litigation costs for D&O carriers, the marketplace remains challenging. Insureds that meet the requirements of the regulation may be able to reduce their insurance premiums but coverage under policies that have been revised to include defence costs within indemnity limits may not be as broad.
Organizations seeking D&O insurance in this new situation should keep these best practices in mind:
- Look for coverage well ahead of renewal. Publicly traded companies benefit the most from the regulation but will need time to review the D&O options available. Organizations should work with their brokers to thoroughly review all D&O policy options and highlight any changes made by carriers because of the regulation.
- Seek advice from insurance experts. A number of variables under the regulation remain open to interpretation and will make securing adequate D&O coverage a challenging endeavor this year. Find an expert to help locate insurance contracts that will comply with the new regulations and provide enough D&O coverage for the organization.
- Be open to creative solutions. Organizations that benefit from the new regulation should be open to alternative insurance structures or adding additional limits to ensure they have the D&O protection they need. One unique solution is adding an excess side A policy, which can provide D&O-type coverage to executives who may not be explicitly covered under D&O policies that have been narrowed to comply with the new regulation.
Contact HUB International’s directors and officers insurance experts to learn about how to protect your company’s leaders.
1Liberty Mutual Canada, “Why COVID-19 accelerated the hardening financial and professional liability market,” September 30, 2020.
2Mondaq, “Canada: Quebec Liability Insurance Duty to Defend Update,” May 6, 2022.
