Directors & Officers Liability

Rising Liability Pressures

Directors and officers of Canadian public entities, municipalities, and not-for-profit organizations operate in an environment where personal financial exposure has grown markedly. Legal opinions from 2022 and updated in 2025 affirm that fiduciary duties under statutes like the Canada Business Corporations Act require active oversight of climate and nature-related risks, including physical threats from extreme weather, transition risks from regulation, and systemic issues like ecosystem degradation.

Failure to address these can lead to breach of duty claims, shareholder or creditor actions, regulatory enforcement, or negligence suits. A 2025 opinion extends this to nature dependencies, noting potential liability for overlooking biodiversity loss, freshwater stress, or Indigenous rights impacts on land use.

Greenwashing concerns have sharpened with amendments to the Competition Act effective in 2024 and 2025, introducing private rights of action for unsubstantiated environmental claims. The Competition Bureau's guidelines demand rigorous substantiation, exposing directors to personal risk if disclosures mislead on sustainability efforts.

Cyber risks compound the picture. Directors must oversee data security programs, as breaches increasingly prompt liability claims for inadequate supervision. While no major Canadian cases have yet imposed personal liability solely for cyber incidents, statutory duties and securities disclosure rules create pathways for accountability.

For public entities and not-for-profits, often resource-constrained, these overlapping pressures arrive against a backdrop of stable D&O insurance markets. Canadian rates for financial lines declined in late 2025, with competitive capacity persisting into 2026. Yet global trends signal rising insolvencies and event-driven claims from PFAS or similar liabilities, which could eventually pressure pricing.

Non-obvious tensions include the balance between proactive risk management—demanding resources—and the business judgment rule's deference to informed decisions. Directors face scrutiny for both overreach in ESG pursuits and under-engagement, particularly as proxy advisors like Glass Lewis emphasize AI and climate oversight in 2026 guidelines.