Fiduciary Duty vs. Fiduciary Liability

March 28, 2010


The term fiduciary is broadly defined as “Law.- a person to whom property or power is entrusted for the benefit of another.” The term fiduciary duty is used regularly throughout directors’ and officers’ liability and professional liability law and insurance, one specific area of professional liability is fiduciary liability. Taken into the insurance context, the term describes an insurance policy focused on pension plans and benefit plans and their trustees, employees, administrators, investment or other committees, and employer representatives. Some insurance companies even have policies dedicated to ‘multi-employer’ sponsored pension plans. Where the relationships within a pension plan or benefit plan quickly assert a fiduciary duty upon the persons above (to the beneficiaries of the plans,) other areas of law create a more grey application of this duty.

Though the GALAMBOS V. PEREZ (2009) case includes an employer – employee relationship, and even a lawyer – client relationship, and a Supreme Court of Canada ruling creates precedent limiting the scope of fiduciary duty, it is based on an unusual set of circumstances and I would suggest that it should not provide a lot of comfort to employers and other potential fiduciaries. The Judgment can be found here

An employee of a law firm sued her boss following the firm’s bankruptcy, because she had lent money to her employer and became an unsecured creditor. She alleged negligence and breach of contract, but went further by attempted to assert the position of solicitor-client relationship alleging failure to provide appropriate advice regarding her loans to the firm, based on the fact that, during her employment, the firm did her legal work on will and mortgage transactions. She was unsuccessful at trial, but this decision was set aside in appeal, based on their “power-dependency relationship” and an ad hoc fiduciary duty. Finally, the Supreme Court found that the Court of Appeal “exceeded the limits of appellate review, violating the principle of non-intervention of a trial decision on appeal, and unduly extended the scope of fiduciary obligations.” Interesting findings by Cromwell J were that the breach of the rules of professional conduct does not always mean breach of the law of negligence or of fiduciary liability, nor does a power-dependency relationship automatically create a fiduciary relationship. Cromwell J cited Jackson & Powell on Professional Liability and explained that “any breach of any duty by a fiduciary is not necessarily a breach of fiduciary duty.” Though this case is unique, I have no doubt this case will be cited regularly in professional liability defence positions. Nicholl Paskell-Mede offers a great overview of the case here in “LIMITING THE SCOPE OF FIDUCIARY DUTY” and valuable comments on the appellant and Supreme Court decisions can be found on Osgood Hall Law School’s here

If you would like to discuss the possible response of available insurance coverage, including lawyers professional liability policy or directors’ and officers’ liability policy, or fiduciary liability insurance other insurance implications, please call.

Greg Shields, Partner
Mitchell Sandham Insurance Brokers
416 862-5626

CAUTION: The information contained in the Mitchell Sandham website or blog does not constitute a legal opinion or insurance advice and must not be construed as such. It is important to always consult a registered insurance broker and a lawyer who is a member of the Bar or Law Society of the relevant jurisdiction with regard to this material before making and insurance or legal decision. All material is copyrighted by Mitchell Sandham Inc. and may not be reproduced in any form for commercial purposes without the express written consent of Mitchell Sandham Inc. Anyone seeking to link this site from any external website must seek the consent of Mitchell Sandham Inc. by sending an e-mail to

Happy Fraud Awareness Month

March 17, 2010

The Canadian Government has a website dedicated to the topic (see here) and the loss control advice is directed to individuals and companies. The Canadian Securities Administrators also offer information for awareness and avoiding fraud (see here) with much of this material directed at individuals. Some of it may seem like common sense, but my experience is that most successful scams are simple. So it can’t hurt to take a look. One thing I did find interesting is that none of the material that I reviewed focused on fraud schemes by employees. As this is a leading cause of loss to companies large and small (one statistic I can’t immediately locate said that the leading cause of small and mid-sized business failure in Canada involved some form of employee theft) the need for proper risk management in the area of crime/fidelity/employee theft should be paramount. If you would like to discuss risk management, loss control or fidelity insurance, please call.

Greg Shields, Partner, Mitchell Sandham Insurance Brokers, 416 862-5626

Directors’ and Officers’ Liability Insurance (D&O) How Much is Enough?

March 15, 2010


This is a great question but, unfortunately, it is not an easy answer.  So my advice is to start (or more likely, keep)  the ball rolling. Insurance quotes are free (with the exception of Representations and Warranties Insurance and some products that border on financial guarantees, but I could at least get you rough non-binding estimates), so investigate and document everything. This creates two big positives, 1) see the quotation process for its loss control value and you will automatically bolster your enterprise risk management function, and 2) you will create the base for some future defence based on Due Diligence or The Business Judgement Rule (you won’t be able to rely on either of these without documentation.)

Examine your budget, because you probably can’t afford to pay for ‘enough’ insurance for all parties and all matters and still remain profitable, but knowing what you can’t afford allows you to direct your realistic insurance premium budget to your highest priorities. If you think you can afford ‘enough’ insurance, call me, I would be happy to help you buy it.

Determine your priorities. With fifteen years experience I am confident saying that determining priorities for D&O is one of the least often conducted or documented exercises in the overall risk management and insurance buying function. The most important priority, establish who the policy is being purchased for:

1.       Personal Assets of individual Directors and Officers based on their personal liability,

2.       The Corporate Entity, but only for where it indemnifies individual Directors and Officers for their personal liability,

3.       The Corporate Entity, for as many exposures and as much money as can be negotiated,

If the answer is all three, then there is a chance no one is happy. What might be considered a very large policy limit to an individual director might not be material to protect the assets of the corporation, but the corporate loss could exhaust the policy before the director’s loss is paid.

Quick (documented) calculations are better than no calculation at all. If you have not done these yet, make fast assumptions of the following, then follow-up with accounting, HR, legal, etc. to determined actual amounts and other criteria:

1.       Statutory remittances for the year (CPP, EI, and all Tax), and take a worst case scenario of potential arrears (even with monthly remittance contracted to outsourced experts, 4-6 months could easily happen, especially if the underlying cause is financial misstatement and/or fraud.)

2.       Market capitalization burn-layer. For example 52 wk stock price hi minus low times the number of shares held at arms-length time 20%. This is just a number, and not specific to your company or to industry statistics. There are many companies who are ready and willing to charge you for securities litigation exposure modelling, and I urge you to use them (at lease in an effort to CMA.) But, this number is still better than not considering the exposure at all. An important CYB.

3.       Debt. Very difficult to determine potential exposure from these stakeholders, and no simple calculation, but if there has been a lot of unsecured debt issued in a corresponding period of financial downturn, I suggest some number be included.

4.       Employment – if there have been a large number of lay-offs, or if you have a large number of employees where their job description or function is split between management and employee activities, put at least a few million here.

5.       Benchmarking – at least for limits of liability, premium and deductible; pick three or four publicly traded competitors, or firms in your industry or of similar size, and go online to, access their management information circular, do a word search for ‘officers’ insurance’ , usually near governance or compensation, and see if they report their D&O numbers. But, keep in mind, if they are part of a conglomerate they may be sharing those policy limits with far more parties and matters/exposures than you might think, and reporting only their allocated portion of the premium. Also, this analysis does not provide any details on the type of coverage, how many enhancements or exclusions there are, or what continuity of coverage the policy provides. There is plenty of data in the marketplace available to further support benchmarking functions.

6.        Defence Costs – Consider at least a few million dollars for any public company, and if you are inter-listed in the US (even the smallest) consider $10 million

Please note there is considerably more exposure criteria to consider, this is only a starting point. There is also a lot of resources, tools, third party advice, modeling, etc. available to insurance purchasers.

Research claims examples, and learn from them. If all you find is Nortel, keep digging, there are lots, and many that relevant to your operations, industry, ownership structure or size. It is very difficult to search for litigation in Canada, because there is no central online database. But most law firm websites offer the cases they are, or have been, involved with (especially the plaintiff focused ones, (siskinds),,, etc.). You can also use a US database like and search for Canada or provincial cases. And, the Canadian Bar Association has set up a National Class Action Database, but it is voluntary and the search function doesn’t work very well.

Know what you are buying. There are many more topics related to the D&O insurance policy that should be reviewed in detail, including, but not limited to Allocation of Loss and Costs, Continuity of Coverage, Indemnification and Presumptive Indemnification, Limits Sharing, Limits Exhaustion, Deductible v Retention, Severability, Exclusions and where to find them, Applications and Warranty Statements, Notice Provisions, Discovery, Extended Reporting Provisions and Run-off. I hope to cover all of this material and more in blog posting and website resources, but if you cannot wait that long, please don’t hesitate to call me with any questions.

Thank you for reading,

Greg Shields, Partner
Mitchell Sandham Insurance Brokers
416 862-5626

The views expressed above are  those of the author and may not reflect the views of the company, its employees or clients. No quotation from this site should be used in any manner without the prior written consent of the author, and any such quote should give credit to the author and the blog. The comments do not take into consideration any circumstances specific to any organization, and legal or insurance advice should be obtained from your lawyer or broker.

Directors’ and Officers’ Liability (D&O) Statistics:

March 12, 2010


For comparative purposes, many D&O Loss Evaluators like to remove the anomalies like the influx prior to SLRA (usually referred to PSLRA), the Securities Laddering Cases, the Market Timing Late Trading of Mutual Funds, etc., etc., etc.  However, a relentless series of anomalies, that are consistent in their timing and which demonstrate a constant rise in severity, should not be removed to create statistical accuracy. The question is not whether there is going to be a systemic loss in 2010, the question is ‘what industry segment will it affect?’

If we were to put the D&O landscape into property terms, the ‘100 year storm’ is happening every year, but unfortunately there is not enough similarity with previous storms to accurately track data and predict the future. We can’t take the position that the storm is not coming, we just need to adequately prepare all industries.

Advisen has stated in an earlier version of its large loss database that cases related to the Madoff Scandal have hit the 100 mark, out of 27,500 in their online Large Loss archive. Advisen suggests Subprime cases hit 664 and Stock Option Grants 264. The Advisen’s Large Loss database is a valuable tool, especially for US exposures, but keep in mind that some of these cases include actions from South America and Belgium.

If you would like to talk about D&O claims, loss control or insurance, please call.

Greg Shields
Partner, Mitchell Sandham Insurance Brokers
Corporate Risk Management
Financial Services and Executive Liability
416 862-5626

Greg Shields joins the Mitchell Sandham Team

March 11, 2010


Greg has dedicated his career to being a trusted advisor to his clients for strategic decisions regarding risk management, corporate governance, and executive liability, professional liability and crime insurance. Those clients include financial services firms, publicly traded companies, worldwide non-governmental organizations, start-up and growing entities and not-for-profit organizations. His 15 years experience includes financial analysis, underwriting, management and executive positions with international insurance companies, and national practice responsibilities with a large insurance brokerage. Greg holds his Bachelor of Commerce from the University of Windsor, the fellowship in risk management (FRM) and is a director with two not-for-profit organizations serving seniors in the community and children and adults with communication disorders. He is a competitive barbershop quartet singer and an extremely average golfer. Greg lives in Etobicoke with wife and two sons.

Greg Shields
Partner, Mitchell Sandham Insurance Brokers
Corporate Risk Management 
Financial Services and Executive Liability
Tel: (416) 862-5626

High Valued Home & Auto Insurance

March 3, 2010

PlatinumPro – Elite Personal Protection

Hot on the heels of being awarded Cornerstone status with Chubb Insurance Company of Canada Mitchell Sandham launches their new brand, PlatinumPro – Elite Personal Protection.  This division is dedicated to servicing our high net worth individuals for their personal insurance needs.  In this division we provide the following services:

–          Dedicated account executive

–          Expert claims service

–          Insurance markets – Chubb, Chartis, Dominion and RSA

–          Personal Service

–          Innovative Coverages

–          Insuring to value

–          Appraisals for your home and assets

–          Communication –email, mail, or in person (your location or ours)

We are a team of specialists providing expert advice in the niche area of personal insurance.  Our service proposition is to provide a first class experience with personal service.  We advise on and can arrange coverage for all types of assets including:

  • Fine homes
  • Automobiles
  • Yachts, speedboats and sea doos
  • Valuable Articles
  • Collections including cars, wine, antiques and art
  • Excess Personal Liability including home invasion and directors and officers liability for those who sit on a not-for profit board of directors
  • Access to private health care

If you are an individual of distinction with high valued assets and your insurance needs have outgrown mass-marketed policies, please contact us today for a review of your personal insurance.


Ryan Mitchell, CAIB, CPIB

Direct: (416) 862-5620