What is Corporate Legal Liability (CLL) insurance?
By Alan Boswell Group
Corporate legal liability insurance (CLL) is purchased as part of a management liability insurance package, which includes directors’ and officers’ (D&O) insurance. The aim is to protect your business if a claim is made against it. Here, we explore CLL in more detail, and answer some of the most common questions asked about what corporate liability insurance covers.
What are corporate legal liabilities?
When a business is incorporated (becomes a limited company), the business is treated as if it were a person. It’s considered to be a separate entity from the people that own or manage it.
This separation between the company and its directors means that the business assumes the role and responsibilities of a person and can be sued as an entity in its own right (its legal liabilities). In other words, the business can be held responsible for the actions of its employees or third-party agents if those actions are carried out for the benefit of the company.
What is corporate legal liability insurance?
Corporate legal liability insurance covers the cost of defending the company if claims are made against it. For example, if a graphics company was accused of stealing work from independent designers and trading off the art for itself.
Policies vary by provider but broadly, you can expect CLL to pay for:
Breach of data protection
Employee dishonesty
Investigation costs
Regulatory costs
Settlements and awards
Other wrongful acts
What liabilities does corporate legal liability insurance cover?
CLL can be tailored to specific business’ needs based on its activities, size, and the perceived risk of a claim. However, you can expect corporate legal liability insurance to cover an extensive range of liabilities which can include allegations of:
Mismanagement
Maladministration
Corporate identity crime
Breach of data protection
Health and safety breaches
Tax crimes
Libel and slander
Breach of contract
Unfair dismissal
Discrimination
Breach of the Companies Act
Breach of fiduciary duties
Infringement of copyright
Misrepresentation
Employee dishonesty
Breach of warranty
Breach of industry regulations
How much does corporate legal liability cost?
Cost will ultimately depend on the nature of your business, its activities, and the level of cover that’s needed. Premiums can also be affected by your claim history and what the likelihood of a claim might be.
It’s important to remember that if you’re aware of a claim that is likely to be made against you, you must declare it when taking out the policy. Otherwise, the claim (if it turns into one) may be declined, or your policy invalidated.
What are the risks of not having corporate legal liability?
CLL insurance is not a legal requirement, but the consequences of going without it can be devastating, particularly for small to medium-sized businesses.
Without corporate legal liability insurance, a business would have to pay for its own legal defence and settlement if awarded to the other party. Depending on the outcome, the financial cost could be significant, potentially affecting whether it could continue to trade. CLL insurance does not cover the cost of fines, though.
What other types of business liability insurance are available?
Corporate legal liability insurance can only be purchased with directors’ and officers’ (D&O) insurance and not as a standalone policy. You can also purchase employment practices liability insurance to provide a package of protection. Typically, these packages will cover:
directors’ and officers’ insurance which covers a business’ directors and senior employees against claims of wrongdoing;
employment practices liability which covers the cost of defending allegations that specifically relate to employment issues, for example, accusations of harassment or discrimination.
FAQs
What does corporate negligence mean?
Corporate negligence is a broad term and can be used to describe any situation where a company has broken rules or failed in its duty of care, resulting in harm to a third-party. For example, if a company’s IT department failed to update its cyber security protocols which led to a customer data leak, consequently resulting in some details being cloned and used illegally.
Who is responsible for liabilities in a company?
Incorporated companies are treated as standalone entities that are responsible for the actions of its employees (and third-party agents). Broadly, it means companies can be held responsible for liabilities if certain conditions and criteria are met.
When a company fails who is liable?
As a separate entity, corporations are held liable for their own failure. For example, if a business cannot pay its debts and files for bankruptcy, its assets will be sold to pay off what it owes.
Need help with your insurance?
To find out more about CLL and liability protection for your business, speak to our team.