Why standard coverage for unions doesn’t cut it

Unions and corporations operate differently, and that means a union needs more tailored insurance coverage when an aggrieved member takes legal action, lest they find themselves underinsured, one expert told Canadian Underwriter.  

Standard policies typically exclude important coverages for unions, such as breach of contract or collective bargaining exclusions, which can leave unions exposed to catastrophic legal action should they find themselves in court.  

“Typically, corporations would have the piercing of the corporate veil to protect them, and as a claim is launched against directors and officers, the personal assets are slightly protected because of that corporate veil,” said Marianne Goodfellow, assistant vice president at Markel. 

Piercing the corporate veil is a legal decision the court makes to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.  

“Because [the union] is not set up as a corporation, there’s no veil to pierce and so you may end up with a little bit more personal liability exposed in a union situation,” said Goodfellow. “Most disputes against the union would be considered as contract disputes, so then contract law comes into play.” 

This means a union’s D&O coverage needs to be a more tailored product — especially since most D&O policies have a breach of contract exclusion. “The main exposure for a union is breach of contract, because the courts have deemed these disputes as contract disputes, [and] they rely on contract law.”  

Also, most brokers will place unions under the not-for-profit coverage umbrella because they are tax-exempt organizations. 

But unions need to make sure that their coverage is expanded to include collective bargaining. 

“So, if you’ve got a typical not-for-profit policy, and you’re not making an exception for collective bargaining, you will run into the potential risk of [getting] nothing [from a policy] with respect to an employee grievance, a grievance from the employer, or [anything] that would typically be handled under the grievance process of a collective bargaining agreement,” said Goodfellow. “Those would be considered to be contract disputes and therefore excluded from cover, typically.” 

The definition of a subsidiary may also need to be amended to represent a local union if the coverage is provided at a provincial or national level, Goodfellow explained. “You have to determine whether or not that subsidiary definition is expanded to cover you.” 

That is because parent unions — be they provincial, national or even international — are often owed a duty by their local branches, said Goodfellow. “And the courts have found that some local executives are personally liable for a breach of fiduciary duty to that parent organization.” 

Understanding the scope of membership in the union, as well as its potential exposures, is also prudent for unions since they have a duty of fair representation in the courts, said Goodfellow. 

Thus, unions should be determining and managing their limits to account for potential loss. 

“The union could be paying almost double for defense — [essentially] paying for their own defense [and] also potentially paying for independent counsel in arbitration for their representatives or their members,” said Goodfellow. “The courts have found that they could be legally obligated to pay for independent counsel in arbitration [and] they could end up having to pay a portion of the grievance loss if the arbitration is successful.”  

 

Feature image by iStock.com/Mihajlo Maricic