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Issue 65 | September 2020

LIANSWERS

This newsletter includes information to help lawyers reduce the likelihood of being sued for malpractice. The material presented is not intended to establish, report, or create the standard of care for lawyers. The articles do not represent a complete analysis of the topics presented, and readers should conduct their own appropriate legal research.
Mis-Direction: Pitfalls of Acting on a Board of Directors

As a lawyer, you may be asked to join, or on your own decide to join, the Board of Directors of an organization, be it a for-profit company, a not-for-profit organization or even a condominium. Your law firm may ask you to sit on client’s Board.

As lawyers, our skills, expertise and insights are often valued by Boards, something to be taken as a compliment. But before accepting these positions, you should understand your potential risks and decide whether you want to assume them. None of this is to say that lawyers should be discouraged from acting on Boards. In fact, the contrary is true, particularly when it comes to community involvement with a non-profit. We simply want to make you aware that you may have potential personal risks in the event you do not have appropriate or adequate insurance sitting behind you. You should also remember the key to avoiding a management liability claim - always exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, recognizing that a higher standard of care might be expected of professionals such as lawyers and accountants in some situations.

The mandatory professional liability insurance that LIANS provides will not cover you if you are sued in your capacity as a director or officer of an organization. As you know, coverage under your LIANS policy is only for errors and omissions that occur when rendering professional services (as defined in the insurance policy) to others. Your LIANS policy is not a management liability policy and does not provide any coverage for claims arising out of an insured acting in the capacity of director or officer of any enterprise (with the exceptions of LIANS and the Nova Scotia Barristers’ Society).

If you are interested in acting as a director or officer of any organization, you should determine if it maintains directors’ and officers’ (D&O) insurance coverage and if so, its limits, terms, conditions and exclusions. In addition, you should inquire whether the organization is aware of any pending or possible litigation. If it does not have appropriate insurance coverage available, or if there is existing, or knowledge of potential, litigation, you should consider your personal risk before joining.

If you are asked by your firm to join the Board of a client or some other organization, or even if you want to join on your own volition, in addition to inquiring about that organization’s insurance coverage, you should inquire if your firm maintains insurance coverage for these activities. In addition, if you find yourself acting on several Boards, you may be able to obtain your own directors and officers coverage in the general insurance market.

One area that presents unique challenges is when a lawyer who is a director is asked by the organization to provide legal advice. If you are a director and are asked to provide legal advice, you should clearly set out the capacity in which you are then acting. If you are then acting as a lawyer, you should make sure you treat this client as you would any other - retainer for legal services you provide, providing advice in writing, memos to file, confirm that your opinion is not offered as a director, and bill the client as a lawyer and not by way of submitting an expense account as you might as a director or officer.

If you act as a director, you will have the same personal obligations, responsibilities and potential liabilities as any other director. Many of these are statutory such as director responsibility for unremitted income taxes, CPP withholdings, and the like.

Lawyers in Nova Scotia who sit on the Boards of non-profit organizations may also be able to avail themselves of the protections provided in the Volunteer Protection Act, SNS 2002, c 14. In order to obtain those protections, you must come within the Act’s definition of volunteer. One thing to remember about this Act though is that it does not override any federal legislation relating to directors that imposes statutory liability on them.

For more detailed information and additional resources, review LIANS' 'Directors and Officers' page: https://www.lians.ca/resources/risk-and-practice-management/directors-and-officers