Nikki Johnson No Comments

Protection of Intellectual Property in a Manufacturing Environment

Some of the most important assets in your business may be your intellectual property. These are intangible assets, including patents, trademarks and trade secrets. The Canadian government created these protections to keep your intellectual property safe from infringement.

Patents

What is a patent?

A patent is a legal protection granted by the federal government to an inventor to encourage progress and prevent others from benefiting from the invention.  Patents cover inventions new to the marketplace or improvements on existing inventions.

There are three basic criterion an invention must meet in order to be patentable in Canada: novelty, utility and ingenuity. An invention is novel if it is the first of its kind in the world. Utility is established if an invention has a useful and functional purpose. Lastly, an invention’s ingenuity is demonstrated if an invention represents something new to an industry that is not already available and readily apparent to someone skilled in that industry.

What does patent protection provide?

Patent protection involves the right to exclude others from making, using or selling anything that would fall under the claims of the issued patent. Canadian patents have a maximum life of 20 years from the date the patent application is filed.

What factors are considered when determining whether a patent has been infringed?

Determining whether a patent has been infringed entails the court examining the claims of the patent and comparing them to the invention or evaluating the validity of the patent. This may be more complex in situations where the claims terms are unclear or ambiguous. The court can determine that infringement exists even if the invention isn’t identical to the original. If the device performs substantially the same function in largely the same way to produce substantially identical results, a court may find infringement.

What are my rights if someone infringes my patent?

You may file a lawsuit for damages in the appropriate court to enforce your patent against an infringer. If you are successful, there are many possible outcomes. Courts have the authority to compensate the patent holder for losses associated with the infringement.

Copyrights

What is a copyright?

A copyright is the legal protection granted by the government to an author. In the case of works created by an employee during the course of his or her job, the copyright would belong to the employer.

What can be protected by a copyright?

The Copyright Act of Canada sets types of creative works to be protected. A non-exhaustive list of material that may be protected under copyright includes:

  • Books, magazines, advertising copy and computer programs
  • Songs
  • Dramatic works, including any accompanying music
  • Paintings and designs
  • Motion pictures
  • Sound recordings (CD, cassette, digital audio tapes, MP3 files)
  • Architectural works

The Copyright Act of Canada provides immediate protection for creative works. As soon as works are written down or recorded, they are immediately copyright-protected.  The copyright protection lasts until the author’s death and for an additional 50 years after the date of the author’s death.

What does copyright protection provide?

Copyright ownership grants the author or owner of the work the sole and exclusive right to reproduce the work in any form. These rights can be limited by some doctrines, like fair dealing.

What factors are considered when determining whether a copyright has been infringed?

A copyright can be infringed by violating any of the rights granted: reproduction, modification, publication, performance and public display of the work.

However, “fair dealing” is allowed without the author’s permission if an individual uses a copyrighted work or a portion of copyrighted work for personal use, or for limited instances of news reporting, criticism or review if certain requirements are met.

What are my rights if someone infringes my copyright?

The Copyright Act of Canada gives you the right to receive civil remedies, including court costs. Additionally, an infringer may be subject to criminal prosecution. If convicted of copyright infringement, an individual may face criminal penalties of $25,000 or imprisonment up to six months, or both.

Trademarks

What is a trademark?

A trademark is a mark that is used by a person for the purpose of distinguishing wares or services manufactured, sold, leased, hired, or otherwise entered into commerce from others in the marketplace. Canadian federal law and common law allows for the protection of trademarks.

What does trademark protection provide?

The scope of the protection can vary widely, depending on the strength and fame of a mark. For instance, many brand names are famous marks that are very strong. The length of time that a mark can be protected is indefinite because it is based upon use, but registered marks in Canada have an initial term of 15 years. A mark may be renewed in successive 15-year increments as long as the mark is still in use.

What factors are considered when determining whether a trademark has been infringed?

Whether a trademark has been infringed is most often dependent upon whether a likelihood of confusion has been found. In determining whether there is a likelihood of confusion, courts generally look at factors like the inherent distinctiveness of the marks, the extent to which the marks are known, the time the marks have been in use, the nature of the goods or services associated with the marks and the degree of resemblance between the marks.

What are my rights if someone infringes my federally registered trademark?

Remedies are available for trademark infringement under both federal law and common law. After a finding of infringement, damages can include, but are not limited to, a temporary or permanent injunction, damages and legal costs.

Trade Secrets

What is a trade secret?

A trade secret is any information that is or may be used in business that is not generally common knowledge in that trade or business.  The information must also have economic value because it is not common knowledge in the trade or business and the holder of the information must make efforts to keep it from becoming generally known.

What factors are considered when determining whether a trade secret has been misappropriated?

The owner of the trade secret must prove that a misappropriator owed an express or implied duty of confidentiality or some other fiduciary duty to the owner, or that the misappropriator obtained the trade secret through some improper means.

What are my rights if someone misappropriates my trade secret?

A lawsuit may be filed for trade secret infringement, depending upon the circumstances. Individuals may be subject to injunctions, may be ordered to pay damages and will be subject to any other remedy the court finds appropriate if convicted. 

Are there applicable common laws?

Quebec also has its own trade secret laws which may need to be considered when developing your policy.

Protect Your Business

Patents, copyrights, trademarks and trade secrets may be integral parts of your business. It is vital that you understand the laws associated with these concepts to protect your intellectual property. You also need to ensure that your behaviour does not infringe on someone else’s intellectual property. This piece is not exhaustive and should be read as an overview. For more information, consult legal counsel.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com
Dan Reith BA(Hons) CAIB

Nikki Johnson No Comments

Insuring Your Intellectual Property

Insuring Your Intellectual Property

As intellectual property becomes a vital part of more firms’ assets, businesses must consider the additional exposures they face. There are several types of intellectual property protected under federal law: trademarks, copyrights, patents, trade dress and trade secrets. To help protect your business, there are two types of intellectual property coverage available: the first protects a company sued for infringement by paying for legal defense, and the second helps pay the legal expenses of suing an alleged infringer.

If your company could be sued by a competitor for infringement or intellectual property theft, or you do not have the funds to cover legal fees associated with defending your patent or trademark, it is vital that you purchase coverage. Defending infringement litigation can cost hundreds of thousands of dollars, not including the cost of damages and prejudgment interest. In patent infringement cases, attorney’s fees can easily top $1 million.

Budgeting and planning for the protection of intellectual property rights may not only save your company a significant amount of capital; it may also help keep your business viable when legal bills accumulate rapidly. There are several options to cover these exposures: the “advertising injury” provision in the standard Commercial General Liability policy, endorsements to Errors and Omissions policies and specialized policies offered by certain insurers specifically designed for the protection of intellectual property rights.   

Commercial General Liability Policy – Advertising Injury

The Commercial General Liability Policy, or CGL, is a standard liability policy offering broad coverage. Coverage for an advertising injury often falls under Coverage B in a CGL. Any act by the insured that somehow violates or infringes on the rights of others (referred to in the policy as an offence) is the subject of personal and advertising injury liability coverage, although only those acts that are specifically listed in the policy are covered. The coverage under the “advertising injury” provision is limited to those injuries that are directly related to the advertisement. Therefore, the policy covers debts owed by the insured party due to claims filed against it.

Coverage B policyholders are sometimes covered in cases relating to trademark infringement; however, copyright claims are only successful where they are directly related to advertising, and patent claims are rarely covered under the “advertising injury” provision. The cases which allow for coverage in a patent infringement case are generally limited to instances in which a court finds contributory infringement or inducement to infringe through an advertising medium. Since the “advertising injury” provision in a standard CGL is rather limited, many businesses consider additional coverage.

Special Endorsements and Policies

Beyond the CGL, specialized policies can be better suited to a business’s unique exposures. These are Errors and Omissions liability policy endorsements that can vary in focus from media and communications to patent infringement. Note that these policies have not been the subject of much litigation, and therefore, judicial guidance on coverage determinations is comparatively limited. It is important to consider multiple carriers, since available coverage varies widely from carrier to carrier.

Infringement Defence and Abatement Insurance

A third option relates primarily to patents, though riders for copyrights and trademarks may be available. Carriers have developed policies specific to intellectual property, generally with patents in mind. In relation to patents, there are three basic policy types: defense and indemnity, defense only and offensive, or infringement, abatement insurance.

A defense and indemnity policy provides defense coverage in a patent infringement suit and, if the party in question is found liable, pays for damages, including prejudgment interest. A defense only policy, much like it sounds, covers only the cost of defense and does not cover damages awarded to the successful party. In addition, an offensive policy covers only the costs of pursuing an infringer. Certain carriers will amend some of the above-mentioned policies to include endorsements for trademark and copyright infringement for an additional premium.

Exclusions to Coverage

In addition to special exclusions, there is a general exclusion to the CGL stating that there is no coverage “for an offence committed by an insured whose business is advertising, broadcasting, publishing or telecasting.” With the increase in claims, many carriers are drafting exclusions that specifically omit coverage for copyrights that fall outside of infringement of copyrighted advertising materials, patents, trademarks and the like.

It is important to be aware of the exclusions to any policy that you purchase. The most common exclusions specified in intellectual property policies are for willful infringement, anti-trust violations, infringement existing or known on the effective date of the policy and criminal acts.

Asserting Coverage

To maximize coverage, there are a number of steps that your company should follow. Failure to investigate the existence of coverage in a timely manner can absolve a carrier of liability and create grounds for a malpractice case against the intellectual property legal counsel. While courts have held outside intellectual property counsel liable for failure to pursue coverage determinations, companies should still proactively recognize and review the potential for insurance coverage for protection of their intellectual property assets.

  1. If a claim has been asserted against your company, you have a duty to notify your carrier. In fact, notifying your carrier immediately is in your best interest because a delay could be grounds for denying coverage. In the case where a formal complaint has been served on the company, the following six steps are recommended.
  2. The policy or policies should be analyzed by counsel to determine under which policies the claim may be covered. In this step, the complaint should be closely examined for types of issues raised and should be compared to the relevant policy clauses.
  3. The company should promptly tender defense to the carrier. In the tender, all policies that may provide coverage should be identified, including the specific clauses.
  4. Demand a prompt response to the tender. If a sufficient extension of the time to answer is not granted, it is possible that a response to the complaint will be due prior to the issue of coverage being resolved. If that is the case, then defense counsel should be retained until the issue of coverage is determined.
  5. Review the carrier’s response to the company’s tender. The carrier may accept defense; it may defend under a reservation of rights; the carrier or the policyholder may seek a declaratory judgment for a coverage determination; or it can reject tender.
  6. If there is a conflict in the interests of the carrier and the policyholder, the policyholder should insist on the right to control the litigation and should further insist upon independent counsel.
  7. Be diligent about which documents are shared with the carrier, especially in cases where the carrier has reserved its rights to deny coverage. While the policyholder has a duty to cooperate with the carrier, in a case where a reservation of rights to deny coverage has been tendered, the production of certain documents to the carrier could result in the waiver of the attorney-client privilege as to the subject matter of the produced documents.

Comparing Policies

Insuring your company’s intangible assets and its liability is a vital part of risk management. Insurance for both infringement of intellectual property and for an assertion of infringement against your company can provide financial security and peace of mind.

Reith & Associates will compare your desired coverage to the specifically named offences in policies based upon enumerated risks and will examine any exclusions that may weaken the coverage you seek. We are skilled at identifying the perils associated with intellectual property and high-technology companies, and we can assist you in selecting the right policy. Let us help you protect your most precious assets. Contact us today to ensure that the coverage you buy meets your needs in today’s marketplace

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com
Dan Reith BA(Hons) CAIB

Nikki Johnson No Comments

Manufacturers and Errors & Omissions Insurance

Consider this scenario: A customer asks your company to manufacture a part according to certain specifications, which were outlined in a contract. It is needed to add the part to an existing product and ship it to their customers by a set deadline.

Your company creates the part, but due to an error that occurs during the production process, the part isn’t made to the customer’s exact specifications. You ship it, they receive it, and realize it can’t be use it in the final product and requests that the part be remade. The delay in production causes your client to miss the deadline to ship their final product to their customers.  As a result of them missing their contractual obligations they face penalties and/or loss of business income/reputation and so they files a lawsuit against your company. Now what?

Exclusions in General Liability Insurance

You might assume that your Commercial General Liability (CGL) policy will cover this claim, but in many cases it will not. Most CGL policies contain “damage to impaired property” and “property not physically injured” exclusions. That means that unless the manufacturing error results in bodily injury or property damage, the CGL policy will not cover the loss.

The customer’s financial loss in the scenario described above would not fall into either of these two categories, so it would not be covered under a typical CGL or products liability policy. In order to protect your business from a product failure resulting in a third-party financial loss without bodily injury or property damage, you need Manufacturers Errors & Omissions (E&O) coverage.

Manufacturers E&O Insurance

Manufacturers E&O is professional liability insurance that covers a manufacturing mistake or negligent service that results in a third-party financial loss without bodily injury or property damage. E&O insurance covers damages that result from:

  • Poor, incorrect or faulty products that you manufacture, handle, sell or distribute
  • Errors and omissions when caused by material defect, including property damage to the product, property damage to the work and property damage to impaired property
  • Negligence or failure to deliver promised services

If customers allege that your product failed or that you were negligent in performing services outlined in a contract, they will likely seek to recoup their financial losses by suing you. You could be saddled with significant legal costs, as well as potential damages if the case is lost. Even if the customer’s lawsuit is found to be frivolous, you’d still incur the cost of defending yourself. That’s where Manufacturers E&O insurance comes in.

Manufacturers E&O insurance will cover both the customer’s financial loss and your defense costs. Most E&O policies are “claims-made policies,” which means that in order for the claim to be covered, both the work in question must be performed and the claim must be made during the policy period.

E&O premiums vary based on the type of product or service you need coverage for, your company’s financial stability and the policy’s limits. Contact Reith & Associates at 519.631.3862 to learn more about adding this important coverage to your risk management portfolio.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com
Dan Reith BA(Hons) CAIB

Nikki Johnson No Comments

Flash Mob Robberies

FLASH MOB ROBBERIES

FLASH MOB ROBBERIES

One ORC method that has recently come to light is flash mob robberies. Also called “smash-and-grab” robberies, these incidents involve a group of criminals swarming a retail business all at once (sometimes with weapons), overwhelming staff and law enforcement on the scene, and attempting to steal mass amounts of merchandise. Flash mob robberies have become more common, costly and violent over the past year, drawing widespread concern from retail businesses and their employees.

Organized retail crime (ORC) refers to large-scale shoplifting incidents or other illegal (and sometimes violent) acts conducted by groups of criminals with the purpose of stealing significant amounts of merchandise. ORC has become a growing concern for retail businesses in recent years. In fact, Canadian retailers estimate that ORC costs them more than $4.6 billion each year. This surge in ORC has largely been caused by criminals looking to capitalize on the accelerated shift to e-commerce brought on by the COVID-19 pandemic. Specifically, criminals are stealing large amounts of goods and reselling them to unsuspecting online shoppers at reduced prices.

The following article provides more information on this ORC method, details about flash mob robberies and possible measures to prevent such incidents.

What Are Flash Mob Robberies?

Flash mob robberies are not crimes of opportunity. Rather, these incidents are planned ahead of time by a coordinated group of criminals—whether it’s five or 100 people. In recent incidents, flash mob robbery plans have often resulted from criminals communicating over social media platforms.

When such an incident occurs, the group of criminals typically approaches the target retail business all at once, making it more difficult for employees or law enforcement to stop them. These criminals may simply rely on the size of their group to carry out the robbery without being apprehended or potentially leverage weapons and acts of violence to further deter anyone from intervening in their plan. For instance, criminals may utilize the following tactics:

  • Breaking storefront glass or display cases
  • Carrying guns, knives, sledgehammers or crowbars
  • Engaging in physical assault (e.g., punching, slapping, kicking or biting)
  • Using pepper spray or other chemical irritants

After swarming the target retail business, the group of criminals usually attempts to steal large amounts of merchandise quickly before promptly fleeing the scene. In some cases, certain criminals may be responsible for waiting outside the business with a vehicle (or several vehicles) to help the rest of the group exit the premises as fast as possible following the robbery.

Because flash mob robberies are group activities, it’s rare for every criminal involved in such incidents to get caught. Although a handful of criminals may be apprehended on the scene, the number of people involved in these robberies makes it easier for criminals to escape without consequences—thus allowing them to plan and be involved in future incidents.

Flash Mob Robberies in Canada

Retail businesses across the country have been impacted by flash mob robberies, including independent shops and large corporations. Here are some of the incidents that have taken place:

  • Quickie—In 2011, a group of 40 or so youth entered a Quickie convenience store in Ottawa and left with $800 worth of goods. It was reportedly Canada’s first flash robbery.
  • Mac’s—In 2014, a group of people entered a Mac’s convenience store in Parry Sound and reportedly took $30,000 of tobacco products in five minutes.
  • Moksha Yoga Studio—In 2017, three masked men broke into a Moksha Yoga Studio in Stoney Creek and reportedly stole about $20,000 worth of Lululemon clothing. 

Prevention Strategies

Flash mob robberies can carry numerous consequences for impacted retail businesses. In addition to lost merchandise, property damage and substantial recovery costs, these incidents can seriously threaten the safety of retail employees and other customers at the scene.

As such, it’s critical for retail businesses to utilize proper strategies for preventing and responding to flash mob robberies. Some risk management measures for consideration include the following:

  • Train employees. Be sure to train retail employees on how to detect and respond to potential signs of a flash mob robbery. These signs may include a sudden emergence of excess vehicles in the store parking lot, a large group of people congregating outside the store or quickly heading toward the storefront, and customers who look like they may be carrying dangerous items or weapons. Employees should be stationed throughout the store to be able to detect these signs. Furthermore, train employees on ways to safely mitigate violent incidents. Employees should know to never put their personal safety at risk to stop a robbery.
  • Utilize security systems. In addition to training employees, make sure to equip the store with various security systems to help deter criminals. This may include security cameras, laminated glass, merchandise sensors and alarm systems. It’s also important to consider security elements that can hinder criminals from fleeing the scene of a flash mob robbery, such as fog systems, strobe lights and roll-down gates. Hiring dedicated security personnel may also offer further protection.
  • Ensure proper product placement. To prevent criminals from stealing high-value merchandise, it’s best to place these goods in elevated areas that can’t be easily reached without assistance. To minimize overall losses amid a flash mob robbery, place limited amounts of each product on store shelves and keep the excess inventory in a secure area.
  • Work with law enforcement. Build strong relationships with local law enforcement and ORC prevention coalitions and follow any guidance they provide for avoiding flash mob robberies. Also, consider asking these parties to help monitor social media platforms for potential ORC plans or other suspicious activity.
  • Establish an emergency response plan. In the event that a flash mob robbery does occur, it’s crucial to have response protocols and lockdown procedures in place. Be sure to create a documented emergency response plan to minimize losses and protect employees (and customers) amid such an incident. Although specific response plan measures may vary between stores, employees should be instructed to contact the appropriate authorities if they detect signs of a flash mob robbery. When a robbery begins, employees should know how to implement the necessary security systems, shut down the store and protect themselves from harm. This response plan should be regularly reviewed and updated as needed.
  • Secure adequate coverage. Lastly, it’s critical to ensure the proper protection against losses related to flash mob robberies by purchasing sufficient coverage. Commercial property insurance typically offers reimbursement to retail businesses that experience losses from theft or ORC. Consult a trusted insurance professional for further information on coverage solutions related to flash mob robberies.

For more industry-specific risk management guidance, contact Reith & Associates.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Dan Reith

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com
Dan Reith BA(Hons) CAIB

Nikki Johnson No Comments

Penetration Testing & Minimizing Cyber Attacks

Penetration Testing & Minimizing Cyber Attacks

Keeping workplace technology up and running is vital to any organization’s success. While this task seems feasible, it’s growing harder and harder each year as cybercriminals expand their reach. It’s not enough to simply protect workplace technology with software and security protocols. It’s also critical for your organization to test the overall effectiveness of these protocols on a regular basis. That’s where penetration testing can help.

Essentially, penetration testing consists of an IT professional mimicking the actions of a malicious cybercriminal to determine whether an organization’s workplace technology possesses any vulnerabilities and can withstand their attack efforts. Conducting a penetration test can help your organization review the effectiveness of workplace cybersecurity measures, identify the most likely avenues for a cyberattack and better understand potential weaknesses.

Review this guidance to learn more about what penetration testing is, the benefits of such testing and best practices for carrying out a successful test within your organization.

What Is Penetration Testing?

Put simply, penetration testing refers to the simulation of an actual cyberattack to analyze an organization’s cybersecurity strengths and weaknesses. This testing usually targets a specific type of workplace technology, such as the organization’s network(s), website, applications, software, security systems or physical assets (e.g., computers and smart devices). Penetration testing can leverage various attack methods, including malware, social engineering, password cracking and network hacking, among others.

Generally speaking, penetration testing is often performed by a professional from a contracted IT firm who is not associated with the organization being assessed in any way. This helps the cyberattack simulation seem as authentic as possible. Penetration testing is typically either external or internal in nature. The primary differences between these forms of testing are as follows:

  • External penetration testing requires the IT expert to attack an organization’s external-facing workplace technology from an outside perspective. In most cases, the IT professional won’t even be permitted to enter the organization’s physical establishment during external penetration testing. Rather, they must execute the cyberattack remotely—often from a vehicle or building nearby—to imitate the methods of an actual cybercriminal.
  • Internal penetration testing allows the IT expert to attack an organization’s internal-facing workplace technology from an inside perspective. This form of testing can help the organization understand the amount of damage that an aggrieved employee could potentially inflict through a cyberattack. 

In addition to these testing formats, there are also two distinct types of penetration tests. How much information an organization provides the IT professional prior to the cyberattack simulation will determine the penetration test type. Specifically:

  • An open-box test occurs when the IT expert is given some details regarding the organization’s workplace technology or cybersecurity protocols before launching the attack.
  • A closed-box test occurs when the IT expert is provided with no details other than the organization’s name before conducting the attack.

Ultimately, the penetration testing format and type should be selected based on the particular workplace technology elements or cybersecurity measures that an organization is looking to evaluate.

Benefits of Penetration Testing

Penetration testing can offer numerous advantages to your organization, including:

  • Improved cybersecurity evaluations—By simulating realistic cyberattack situations, penetration testing can help your organization more accurately evaluate its varying security strengths and weaknesses—as well as reveal the true costs and of any security concerns.
  • Greater detection of potential vulnerabilities—If any of your workplace technology or other cybersecurity protocols fail during a penetration test, you will have a clearer picture of where your organization is most vulnerable. You can then use this information to rectify any security gaps or invest further in certain cyber initiatives.
  • Increased compliance capabilities—In some sectors, organizations are legally required to engage in penetration testing. For example, the Payment Card Industry Data Security Standard calls for organizations that accept or process payment transactions to execute routine penetration tests. As such, conducting these tests may help your organization remain compliant and uphold sector-specific expectations.
  • Bolstered cybersecurity awareness—Mimicking real-life cyberattack circumstances will highlight the value of having effective prevention measures in place for your employees, thus encouraging them to prioritize workplace cybersecurity protocols.

Penetration Testing Best Practices

Consider these top tips for executing a successful penetration test within your organization:

  • Establish goals. It’s crucial for you to decide what your organization’s goals are regarding the penetration test. In particular, be sure to ask:
  • What is my organization looking to gain or better understand from penetration testing?
  • Which cybersecurity threats and trends are currently most prevalent within my organization or industry? How can these threats and trends be applied to the penetration test?
  • What specific workplace technology elements or cybersecurity protocols will the penetration test target?
  • Select a trusted IT professional. Consult an experienced IT expert to assist your organization with the penetration test. Make sure to share your organization’s goals with the IT professional to help them understand how to best execute the test.
  • Have a plan. Before beginning the penetration test, work with the IT expert to create an appropriate plan. This plan should outline:
  • The general testing timeframe
  • Who will be made aware of the test
  • The test type and format
  • Which regulatory requirements (if any) must be satisfied through the test
  • The boundaries of the test (e.g., which cyberattack simulations can be utilized and what workplace technology can be targeted)
  • Document and review the results. Take detailed notes as the penetration test occurs and review test results with the IT expert. Look closely at which cybersecurity tactics were successful during the attack simulation and which measures fell short, as well as the consequences of these shortcomings. Ask the IT professional for suggestions on how to rectify security gaps properly.
  • Make changes as needed. Based on penetration test results, make any necessary adjustments to workplace technology or cybersecurity protocols. This may entail updating security software or revising workplace policies.
  • Follow a schedule. Conduct penetration testing at least once every year, as well as after implementing any new workplace technology.

For more risk management guidance and insurance solutions, contact us today.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Dan Reith

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com
Dan Reith BA(Hons) CAIB

Nikki Johnson No Comments

Liabilities of Non-Profit Board of Directors

Liabilities of Non-Profit Board of Directors

Non-profit organizations provide essential social services that benefit communities and their members. The vast majority of these organizations cannot survive without a volunteer board of directors assigned to elect officers, adopt policies and make major financial decisions for the organization. Although members of the board are volunteers, there is a certain amount of risk involved in holding one of these positions. Specifically, even when acting in good faith, board members are subject to personal liability, which may affect their personal financial status because of their management decisions. The role of a volunteer board member does come with certain legal responsibilities and certain legal ramifications when things do not go right. 

It is imperative that your organization and board of directors understand the risks involved with their responsibilities as board members and the ways in which they can protect themselves from personal liability.  Every community organization has a duty to educate prospective and sitting board members on their legal duties and obligations on an annual basis.  That said, ignorance is not a defence at law and where the organization fails to provide information it is ultimately the personal responsibility of each board member to educate themselves before accepting a volunteer board position and/or continuing to serve on a board.  Having one’s name on the letterhead does bring real ramifications.  

Risks and Responsibilities

To combat the chance of affecting the personal liability of board members, non-profit organizations should assess the risks involved with holding these positions. Your organization should first develop a volunteer risk management committee to identify all risks and pose solutions to minimize potential harm. In addition, you need to ensure that the board members understand their governance responsibilities. Your non-profit should educate its board on their legal duties, fiduciary duties and decision-making roles. Furthermore, the risk committee should ensure the following:

  • The organization is working within its stated mission.
  • Funds are spent according to the mission and spending decisions are known to donors. The organization does not accept donations with conditions.
  • Individuals advancing personal agendas counter to the organization’s mission are not allowed to sit on the board.

Once the risks are assessed and the board of directors is aware of those risks, board members must also understand the responsibilities associated with the positions they hold. Legally, board members have three main duties:

  1. Duty of Care: The individual should act in the way that a reasonable person would act in a similar position and under similar circumstances. Acting under good faith is an essential part of the functions of the board.
  2. Duty of Loyalty: The individual should place the organization’s financial interests as the primary responsibility. As a board member, one should not use his or her position for personal gain, financially or otherwise. In addition, individuals should be honest about business ventures that pose a conflict of interest when acting as a representative of the organization.
  3. Duty of Obedience: The individual should try to further the mission of the non-profit by supporting board decisions and implementing policies as they are outlined.

Board members who fail to fulfill their duties as outlined above may be held liable for their actions or inactions.

Protections

Since there are risks involved with being part of a non-profit board of directors, there are several protections available to minimize personal liability. First, most non-profit organizations have indemnification provisions in their bylaws. These provisions explain that the organization will cover or reimburse the legal expenses accrued by board members in the event of a lawsuit. However, it should be noted that indemnification is only as good as an organization’s financial ability to pay it. If an organization does not have excess funds, it may not be able to support this provision.

Incorporated organizations are required by law to indemnify their directors for such losses. There is no such obligation imposed upon unincorporated groups, but most groups do offer indemnities because it is a good policy to do so.

Finally, non-profit organizations should purchase directors and officers (D&O) liability insurance to cover their board members in situations that fall outside of the indemnification provisions or in the event that their financial situation does not allow them to cover extensive legal expenses.

Beyond providing a financial backing to indemnification provision, D&O liability insurance is essential since most individuals will not volunteer on a board with the knowledge that they are risking their personal assets in the event of litigation.  Further, D&O can include coverage to protect board members from claims made against them for hiring/termination decisions, failure to make statutory remittances and costs of investigations.  The potential for personal loss is real! 

More Information

Proper insurance coverage and other risk management strategies can help ensure that your organization and its board of directors is protected against liability. For more information about appropriate insurance coverage, contact Reith & Associates Insurance and Financial Services Limited at 519.631.3862 today.

Dan Reith, Principal Broker
Dan Reith, Principal Broker

Dan Reith

Principal Broker
Reith & Associates Insurance and Financial Services Limited
https://reithandassociates.com/
https://www.linkedin.com/in/dan-reith-ba-hons-caib-b7a11b20/