Management Liability Insurance

Management liability insurance is a comprehensive policy made up of three different protections designed to cover the legal costs (and any settlements or awards) of defending against claims of wrongful acts, or alleged wrongful acts, made against company directors, employees, or the company itself.

It offers financial security for both businesses and individuals, typically paying out for the costs of a wide variety of claims.

The three heads of cover that can make up a management liability policy are:

To understand what management liability covers it is easier to look at the three different heads of cover in isolation.

Directors’ and Officers’ insurance

The idea of D&O insurance is to provide financial protection for directors and officers of a company as they undertake their job. It is a difficult and complex job and they are making decisions daily, that are subject to scrutiny. These decisions can leave a director exposed to personal, civil, or criminal liability and it is very important to remember that a director’s liability is unlimited; their own personal assets are at risk: their car, their house, and even cash in the bank.

It is a common misconception that directors assume the company will provide indemnity – but this only happens in very limited cases and only in certain situations.

Directors’ and Officers’ insurance covers the cost of compensation claims made against directors and key managers for alleged wrongful acts.

Wrongful acts may include:

• Breach of trust
• Breach of duty
• Negligence
• Error
• Misleading statements
• Wrongful trading
• Defamation, slander, or libel

Claims can be made by many different organisations or individuals.

Just looking at legislation, a company director has responsibility for ensuring the company complies with the:

• Health & Safety Act
• Companies Act
• Insolvency Act
• Companies Security Act
• Company Directors Disqualification Act
• Financial Services Act
• Insurance Act
• etc.

It’s a long list. But it’s not just legislation, there are other things. Company directors can face allegations of libel and slander, they get involved in the complexities of takeovers, mergers, acquisitions, and regulatory compliance. Even trading with customers can see claims made.

It is really important to remember that directors can also be held accountable for the actions of others. So while a director might not have committed a particular wrongdoing, the actions of a subordinate can have ramifications for a director.

Sometimes claims may be spurious and frivolous. But in actual fact, the cost to defend those claims and make them go away can be very significant.

A management liability policy would cover the costs of defending these legal claims and any subsequent settlements or awards.

Corporate legal liability (Entity insurance)

Corporate legal liability is similar to Directors’ and Officers’ insurance but defends claims made against the company as opposed to individuals.

Often, when making claims against a company director, a lawyer will also name the company involved if they can. This will be because the company will be seen as having greater assets than the individual. It makes sense, therefore, to provide your company with the same protection. This is where corporate legal liability insurance comes in.

Examples of potential claims can include:

• Breach of contract
• Copyright infringement
• Corporate manslaughter

In the same way a D&O policy covers the costs of defending these actions for the individual, a corporate legal liability policy covers the company’s costs of defending these claims through the legal process and any awards or settlements.

Corporate legal liability can only be purchased in conjunction with D&O insurance.

Employment practices liability insurance

Employment practices liability insurance (EPL) offers the company and their directors, officers, and employees, protection from claims arising from a wide range of employment disputes.

Employment law has changed dramatically over the years and, rightly, offers employees protection from mistreatment and poor working practises. Employees know their rights and will hold their employer accountable if they feel there has been a breach in their conditions of employment.

Disgruntled employees can also cause major disruption through spurious claims against a company or another company employee. They all need to be investigated and addressed, often resulting in costly legal action.

Some common employment disputes include:

• Unfair or constructive dismissal
• Change of duties without agreement or consultation
• Discrimination – this could be on the grounds of pregnancy, disability, sex, race, religion or belief, gender reassignment, sexual orientation, age, and marriage and civil partnership
• Harassment
• Breach of employment contract
• Stress caused at work
• Unfair redundancy

Having an employment practises liability policy in place will provide you with the means to defend these claims through any legal process and the cost of any awards or settlements.

An EPL policy can be purchased standalone – but more often than not it is combined with D&O and entity insurance within a comprehensive management liability policy.

Management liability policies include three products, Directors’ & Officers’, entity (also known as Corporate Legal Liability) and employment practice liability.

These combined products help to provide cover against judgements and settlements, defence costs, and claimants legal costs.