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D&O insurers believe Bill 198 in Ontario will make it easier for plaintiffs to sue Canadian companies and boards
Devastating legal battles following financial mismanagement by the U.S. companies Enron and WorldCom have caused concern in Canada, leading to an increase in D&O claims and the drafting of new legislation.
AIG Canada CEO Gary McMillan told a Toronto audience attending a panel discussion celebrating '30 years of D&O in Canada' that Bill 198, new legislation introduced in Ontario, is causing directors, officers and and their insurers to squirm in their seats. "It remains to be seen how many [D&O insurers] will stand the test of time [in light of] increased claims and the power of Bill 198," McMillan says.
BILL 198: A PRIMER
The intention of Bill 198 is to improve the quality of public disclosure among Ontario corporations. The bill gives investors incentive to sue reporting issuers and other responsible individuals for misrepresentations or the failure to disclose material changes. It also addresses a perceived imbalance in the Ontario class action regime, which gave primary market investors who buy securities under a prospectus the right to sue, but gave no remedies to secondary market investors. This was an ironic situation, according to panelist Jean-Paul Bureaud, senior legal counsel at the Ontario Securities Commission. He noted 95% of all trading occurs in the secondary market, where investors decide to buy or sell based on companies' disclosure records.
Bill 198 contains a number of safeguards designed to: 1) create incentive to sue without harming the public company and its other shareholders, and 2) prevent perils experienced in U.S. class actions [i.e. 'strike suits,' or non-meritorious actions brought to blackmail companies into settling claims for fear of engaging in lengthy litigation].
In order to deter the plaintiff bar from launching strike suits, Bill 198 includes provisions such as a leave requirement, liability caps, damage thresholds, and a loser-pays cost rule. Essentially, under the leave requirement, counsel cannot pursue a court action until the judge is satisfied that the action is brought in good faith and the plaintiff has a reasonable possibility of success. "The court is being asked to play the role of the gatekeeper, both in terms of allowing the action to start and...