If you're a director, officer or senior manager, you're exposed to legal actions against the company and/or yourself personally. We often get asked, “How can I personally protect my business and personal assets?” So we thought we'd explain management liability insurance and related covers.
What is management liability insurance?
Management liability insurance is an insurance package designed for small and medium-sized private companies and limited liability partnerships (LLPs). It offers financial protection to both senior management and the company against a range of allegations such as:
- Unfair dismissal
- Failure to consult.
By combining three areas of risk into one single policy:
- Directors and Officers Liability (D&O)
- Employment Practice Liability (EPL)
- Company Legal Liability (CLL)
Each insurer's standard management liability insurance policy may vary. A number of key cover extensions can also be added to management liability insurance policies where necessary, such as pension trustee’s liability (PTL), privacy breaches, and kidnap and ransom.
What does directors and officers insurance mean?
Directors and officers insurance (D&O) is an insurance policy that protects the personal wealth of directors, officers, and employees against claims of wrongful acts made against them.
What does directors and officers insurance cover?
Generally speaking, D&O covers the following types of claims:
- Securities violations e.g. insider trading or securities fraud.
- Mismanagement, such as failure to properly manage company finances or operations. Even personal involvement with the administration of any company pension.
- Harassment and discrimination
- Shareholder derivative suits e.g. protection against claims brought by shareholders, including other directors.
- Breach of fiduciary duty e.g. self-dealing or conflict of interest.
- Regulatory investigations, such as failure to comply with environmental or trading standards laws and regulations.
Individuals who have acted in good faith and complied with their responsibilities are generally protected from personal liability under the law. However, those that fail to meet their legal obligations can be held personally liable.
What are the benefits of directors and officers insurance?
The main benefits of having a D&O insurance policy are:
- Financial protection: covering the cost of defending against claims and any damages awarded to the plaintiff.
- Legal representation: access to experienced lawyers who can defend against claims and negotiate settlements.
- Reputation protection: effective dispute resolution limits the possibility of negative publicity.
- Attract and retain top talent: demonstrates the company's commitment to protecting its leaders.
- Peace of mind: knowing they, and their personal assets, are protected against claims.
- Encourages ethical behaviour: provides protection against claims for wrongful acts committed in their capacity as leaders of the company.
For more information, you can visit our D&O insurance page. If you'd rather speak with someone, one of our experts is waiting for your call on 0330 8187 676.
What is employment practice liability?
Employment practice liability insurance (EPL) offers financial protection against legal costs and financial awards of claims arising from employee disputes.
What does employment practice liability insurance cover?
It generally covers the following types of claims made by employees or job applicants:
- Wrongful termination: Protection against claims of illegal termination, such as discrimination or retaliation.
- Discrimination: Coverage for allegations of discrimination based on race, gender, age, religion, or other protected class.
- Harassment: Protection against claims of sexual harassment, racial harassment, or other forms of workplace harassment.
- Retaliation: Coverage for claims of retaliation for reporting illegal or unethical behaviour.
- Wage and hour violations: Protection against claims of violation of wage and hour laws, such as failure to pay overtime.
- Employee benefits claims: Coverage for claims related to employee benefits, such as failure to provide required benefits.
- Negligent hiring: Protection against claims that the business was negligent in hiring a dangerous or unqualified employee.
What are the benefits of employment practice liability insurance?
The law ensures employees are treated fairly and gives them enforceable rights if they believe otherwise. This protects their interests with regards to sickness, holiday, having a baby, sexual orientation and flexible working.
As a result, employee-related disputes can be highly emotive. If internal procedures aren't correctly followed, you can leave yourself at risk to a successful employment tribunal claim, causing significant financial and resource disruption.
In summary, EPL provides:
- Financial protection: employment practices liability insurance covers the cost of defending against employee-related claims and any damages awarded to the plaintiff.
- Legal representation: access to experienced employment lawyers who are best placed to defend against EPL claims and negotiate settlements.
- Reputation protection: efficient resolution of employment-related disputes which, in turn, minimises any potential negative publicity.
- Risk management: help and support with employee lawsuits, therefore allowing much more focus to remain on business operations and growth.
- Compliance support: guidance on employment law and regulations, helping businesses to maintain compliance and avoid potential claims.
- Peace of mind: greater protection against employment-related claims.
EPL often comes as part of your management liability insurance although what is, and isn't, covered varies from one provider to another.
For more information, get in touch with an employment practice liability insurance expert or call us on 0330 8187 676.
What is corporate legal liability insurance?
Corporate legal liability (CLL) insurance is similar to D&O insurance but defends claims made against the company as opposed to individuals.
These claims range from:
- Maladministration of a company pension
- Employee benefit claims
- Breaches of data protection
- Corporate identity crime
- Health and safety, taxation or other regulatory claims.
Corporate legal liability can sometimes only be purchased in conjunction with D&O insurance, so be sure to check your policy details.
Why do I need management liability insurance?
Management liability insurance has not always been purchased by small and medium-sized businesses, but it's becoming increasingly important due to the following factors:
- Responses to Covid-19
Should directors and officers be found to have made mistakes in the development of appropriate risk management and preparedness strategies prior to the pandemic, they could face actions from a broad range of stakeholders including employees and shareholders.
- SMEs are just as vulnerable as large companies
SMEs are not exempt from directors and officers claims. They face exactly the same risks and regulations as their larger peers, but often do not benefit from in-house HR or legal teams.
- Directors’ personal assets are at risk
If a director has been accused of breaching their duties, they’re personally liable to defend the claim. This means their personal assets are potentially at risk if they do not have adequate cover.
- Defending legal action can be costly
Legal costs for defending allegations against the company or one of its directors can often run into tens of thousands of pounds.
- Employment practice claims remain a large threat to directors
In an increasingly litigious society employment practice allegations such as discrimination, unfair dismissal or failure to consult can result in astounding settlements.
- Protection in case of bankruptcy or insolvency
If faced with bankruptcy or insolvency, creditors may pursue legal action against directors if they feel that they have not acted in their best interests.
Who can try to sue me?
Anyone you come into contact with during your employment could attempt to sue you, if they feel they have suffered as a result of any shortfall in your proper duties as a director, officer or senior manager.
- Service users or their families
Even if a claim is false, you still have to defend it.
Management liability insurance misconceptions
|My limited liability status protects me from being sued personally.||This is incorrect, limited liabilty status does not protect you from being sued personally. Even your spouse or partner could be held liable.|
|Management liability insurance is only for those running publicly traded or very large businesses.||Whether your business is large or small, you’re at risk and the potenial liabilty can be severe.|
|I’m never going to be in the position where I could be sued by one of my employees or stakeholders.||We all make mistakes and if you have a senior role, there are considerable risks, especially as there’s increasing legal and regulatory focus on personal accountability.|
|Directors and officers claims are covered under other liability policies.||D&O claims are NOT covered under any other liability policies such as a Professional Indemnity policy.|
Protect your business and personal assets
Without the comfort of management liability insurance you may be putting your personal assets at risk. But remember, management liability insurance definitions can vary, therefore it's worth considering the terms to determine what cover best meets your needs.
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