What management liability insurance do I need?
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). Management liability insurance offers financial protection to both senior management and the company against a range of allegations such as:
- unfair dismissal;
- failure to consult.
The main cover under a management liability policy is directors’ and officers’ insurance (D&O), with optional protection for employment practices liability (EPL), corporate legal liability (CLL), and crime insurance. However, each insurer's standard management liability insurance policy varies.
What does directors’ and officers’ insurance mean?
Directors’ and officers’ insurance (D&O) is the main cover offered under management liability. It provides any director, partner or employee acting in a managerial capacity on behalf of the company cover for defence costs incurred during a claim and awards made against you personally. For example, the costs associated with defending trading standards, environmental or other regulatory claims against you; claims by individual shareholders (including other directors); defence costs and awards of claims arising from your personal involvement with the administration of any company pension.
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 is employment practice liability?
Employment practice liability (EPL) offers financial protection under management liability against defence costs and awards of claims arising, for example, from allegations of sexual harassment or wrongful dismissal by employees.
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
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, an employee benefit claim, breach of data protection or corporate identity crime. And also defence costs of 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:
Who can try to sue me and why?
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. This includes employees, shareholders, creditors, regulators, service users or their families, competitors, or government. Even if a claim is false, you still have to defend it.
Management liability misconceptions
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.