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The Quebec D&O Market and Defence Outside the Limit

How proposed legislation could change risk managers’ approach to D&O insurance.

In Quebec the directors and officers (D&O) market is undergoing a change that could impact how organizations’ D&O policies are structured. For years, organizations in Quebec have benefited from D&O coverage with unlimited defence costs over and above their policy limits, referred to as defence outside the limit (DOL).

DOL is an obligation in Quebec because of the Quebec Civil Code (QCC). Under the QCC to date, DOL applies to D&O policies when two conditions are met: the insurance policy must be subject to Quebec law and the insurance policy has to qualify as a liability policy. Once those conditions are met, Articles 2500 and 2503 provide the legal basis for DOL:

Art. 2500: “The proceeds of the insurance are applied exclusively to the payment of injured third persons.”

Art. 2503: “The insurer is bound to take up the interest of any person entitled to the benefit of the insurance and assume his defence in any action brought against him.

Today, D&O litigation in Quebec specifically has made D&O policies more costly to insurers and their profitability is under pressure. In some cases, insurers have paid their entire limit of liability to satisfy a settlement and have also experienced a significant defence cost obligation in addition to their limit. This differs from the rest of Canada where defence costs and settlement amounts are included within the limit of liability for publicly traded companies.

Litigation trends have contributed to higher defence costs, largely due to private attorney fees, invocation of conflict of interest, more class-action lawsuits, and the development of securities litigation in Canada. Without DOL, litigation can quickly exhaust organizations' policy limits, leaving them to pay out of pocket for claims and settlements. But with DOL, they can potentially incur huge additional losses for the insurer, especially when the insured is a large organization. So insurers are responding with different underwriting approaches, policy wording clarification, changes in coverage, and rate increases.

In addition, a proposed amendment to Art. 2503, Bill 82, has been put forth. It would address Art. 2503:

“However, the Government may, by regulation, determine categories of insurance contracts that may depart from those rules and from the rule set out in Article 2500, as well as classes of insureds that may be covered by such contracts. The Government may also prescribe any standard applicable to those contracts.”[1]

Because risk managers at Quebec-based organizations now must deal with these changes, they’re at a disadvantage when it comes to the cost of D&O premiums compared with  their Canadian and international competitors, and must also manage retentions. Some are even moving their domiciles out of Quebec just to get D&O insurance.

Changes may be ahead if Bill 82 passes. But with the right level of planning and preparation, risk managers can be better positioned to handle those shifts.


Understand changes in the marketplace and the insurers’ moves.

Starting in mid 2019, the Quebec D&O insurance market saw sharp increases in premiums and significant coverage restrictions, and some insurers even left the Quebec market completely. Risk managers are now facing a lack of capacity, when D&O insurance was almost a commodity two years ago.

Most public organizations have gone through at least one renewal cycle under these circumstances, but private  organizations and nonprofits are just recently being affected. Organizations in the hard hit with covid space such as retail and schools, cannabis, pharmaceutical and biotech industries have been the hardest hit, with financial institutions being less impacted.

Different insurers are taking different approaches to their D&O policies as they pertain to Quebec. Some insurers have decided to create a policy that says that, if the organization is headquartered in Quebec and the board is located there, DOL will apply to that organization’s subsidiaries all over the world. Others have taken a layered approach. Because the civil code applies to the claim, not necessarily the full policy, these insurers will need to validate whether each claim is subject to Quebec law or not. Still other insurers are taking a quota share structure.

Overall, insurers are making changes in several key areas: Underwriting approaches, policy wording clarification, changes in coverage, and rate increases (Exhibit 1).

An experienced broker with a Quebec presence can help you gain knowledge of the market and provide guidance as to which insurer quotes to accept and which ones to challenge. Some insurers still have some flexibility at this time, and your broker can help you take advantage of it where it exists. In all cases, there’s an opportunity to review and negotiate new primary wordings to help achieve the best coverage possible.


Prepare for the underwriting meeting.

The most successful risk managers proactively prepare for their meeting with the underwriter, and have a good understanding of the changes insurers are seeking to make—from writing excess only to exiting the market. Getting ahead of those changes will be critical, especially if a organization’s incumbent insurer plans to make changes to coverages, terms and conditions or even exit the market. These market conditions aren’t going away any time soon, so risk managers should prepare their stakeholders for D&O renewals—or needing to find a new insurer—as early as possible. It’s important to educate the C-suite and board that the best result in the current renewal market is the ability to maintain capacity.

Risk managers should ask at least one person among the CFO, CEO and Chief Legal Officer to attend the underwriting meeting. If two or more of them attend, that’s even better. And, of course, the board needs to be part of the communications. If a major claim comes up, the personal assets of the directors and officers are on the line.

An experienced broker can act as a coach, helping you practice answering the questions that the underwriter may have and prepare the narrative in a way that will resonate most with them. Plus, they can provide metrics that benchmark you against peer companies, which the board and C-suite will want to see.

It will also benefit you to build relationships with the insurers. Knowing your underwriter well and maintaining a long-term partnership can create a lot of value. While it’s tempting to shop around for price, in these current market conditions, you’ll have more stability over the long term when you invest in the partnerships you have.


Be creative in your approach.

Risk managers have different types of structures and approaches available to them while they wait for changes to take hold. All companies affected by DOL should be sure to have a local team in Quebec, and partner with their broker to brainstorm ways to challenge the status quo.

Most companies are staying with the traditional approach to D&O insurance for now, even though pricing has significantly increased. But risk managers can explore different alternatives to traditional D&O insurance, including Side A, co-insurance, and higher retentions.


The hardening market is challenging for risk managers everywhere, but those in Quebec face some new hurdles. By staying on top of the insurers’ moves and planning early, Quebec-based companies will be in the best position to manage those hurdles.