Management Liability Insurance Policy Online

Management Liability Insurance Explained

Management liability insurance protects company directors, executives and board members from personal losses when clients sue them for mismanagement, misrepresentation, or other mistakes that have caused them harm.

Clients can be shareholders, suppliers, or even customers of the company or organisation.
 

It also reimburses the company for defending its directors and officers or for lawsuits it is directly named in. This insurance falls into the same category as professional liability insurance – or errors and omissions (E&O) insurance – for doctors, lawyers, and financial professionals.

An Example Explaining Management Liability Insurance:

An employee suing their organisation for mistreatment may file a lawsuit against one or more company directors. As a result, the company will have to spend money to hire lawyers and other legal aids to work on behalf of those directors or the company as a whole.

A management liability policy can cover the costs of litigation and legal compensation up to the policy's coverage amount.

You should note that before issuing coverage, the insurer will need to further investigate the claim as well to ensure the insured director or company has not violated any laws, as this policy excludes coverage for fraud or other criminal acts.
 

Therefore, if the company purposely omits material information or misrepresents itself or its executives, the insurer will not cover legal costs/offer insurance coverage.

Why Do You Need a Management Liability Insurance Policy?
 

• Blanket Coverage on an Unnamed Basis
  Under a management liability policy, you do not have to specifically name each individual you want to cover under your organisation. The insurance coverage is extended as a collective shield to employees who serve on the board or are a part of management.
  
  This blanket approach simplifies the administrative processes and mitigates the need to constantly update policy coverage as employees change roles within the organisation or if new members are added to the company's board.
  
  
• Coverage For all Ages and Includes Retired, Present and Future Directors
  This policy ensures directors and executives of all ages, regardless of their roles, are eligible for coverage so long as they qualify for it under the policy. This means the policy will cover retired, present and potential directors.
  
  This comprehensive approach ensures that all individuals involved in decision-making roles are provided insurance coverage regardless of age.
  
  
• Inclusive Definition of "Officers"
  The term "Officer" is not strictly defined under most management liability policies. Instead, it covers a broad spectrum of roles encompassing people in managerial or supervisory positions responsible for governing the organisation and making decisions on the company's behalf.
  
  This ensures the employees are covered even if their job titles do not match traditional officer roles. Simply put, the policy covers employees based on their scope of responsibility rather than their job titles.

Management Liability Insurance Coverage Types

Like any insurance product, the policyholder, i.e. the company, will pay regular premiums to claim coverage and insurance benefits. A typical management liability policy contains three types of insuring agreements – Side A, Side B, and Side C.
 

• Side A: Covers directors and executives for claims where the company refuses or cannot pay for indemnification (compensation for losses). For example, if the company has declared bankruptcy, Side A will cover the insured employee for litigation costs.
  
  
• Side B: Covers the losses of directors and officers when the company cover them. In this case, the policy will reimburse the company for legal costs.
  
  For example, if a director is sued for financial misrepresentation, the company can choose to cover the legal fees. Side B will then reimburse them for paying for the director's legal fees.
  
  
• Side C: Also called entity coverage, covers the corporate entity/company itself for any losses due to the company's wrongful acts.
  
  

The exact coverage a company goes with can be modified depending on the nature of the business or its unique requirements. Moreover, this type of insurance can be very specialised, so buyers should find an experienced insurer that works with companies in their sector.

Common Claims Covered Under Management Liability Policies
 

• Claims arising due to failure to comply with workplace laws.
• Claims that arise due to a failure to meet investors' expectations.
• Employment Practice Liability (EPL) or employment lawsuits for wrongful termination, discrimination, and workplace harassment.
• Emergency cost advancement – If the company claims expenses before getting written consent from the insurer - they are given retrospective approval for the amounts.
• Kidnap response costs if the insured director is the victim of a kidnapping.
• Public relations consultant costs to prevent the effects of negative publicity.
• Claims coverage is extended to directors and officers under new subsidiaries established by the company.
• Claims related to lack of transparency, negligence, and misrepresentation.

What is not Covered Under a Management Liability Policy?
 

• Deliberate violations of a contract, law or regulation.
• These can be any criminal, fraudulent, dishonest or malicious acts resulting in fines or penalties.
• Infringement or misappropriation of patents or trade secrets.
• Business fraud or known wrongful acts that existed before policy commencement.
• Internal conflicts like lawsuits between managers, directors or executives within the same company.
• Losses due to war, terrorism and nuclear perils.
• Employer's liability in case of bodily injury or disablement of an employee resulting from performing their jobs.
• Fines, penalties, or claims for pollution, and costs for clean-up, containment, etc.

How Much Does a Management Liability Policy Cost?

Your management liability premium will be based on factors like:
 

• The nature and type of your company and the industry it operates in.
• The number of company managers, directors and officers and the number of employees
• Your company size and location(s)
• Past claims or lawsuits filed against your company.
• Your company's estimated revenue and/or profit
• Total number of assets
• Management liability coverage amount, i.e. the limit of liability you opt for
• Other factors that may affect your insurance premiums are the company's age, financial stability, trading patterns, investors and shareholders.

Businesses that Need Management Liability Insurance

• Start-Ups:
  This policy can benefit start-ups as any claims or legal disputes from clients can stunt their financial growth or even lead to bankruptcy. Being insured under a management liability policy will help prevent any extreme eventualities.  
  
  
• Small And Medium-Sized Businesses (SMEs):
  Management liability insurance becomes even more important for SME companies (businesses with up to 500 employees) as it facilitates their continued growth and allows them to establish themselves in their respective sectors better.
  
  This is because any claims riding due is misrepresentation or mismanagement can seriously affect their bottom lines.
  
  
• Large Businesses, Corporations, Multi-National Firms, And More:
  Larger companies with more than 1,000 employees can also benefit from this policy.
  
  Due to the sheer size of the company and the number of employees, it may get difficult to track litigious processes, so opting for this insurance policy can offer financial aid in the case of multiple claims and peace of mind to directors and executives.

Conclusion

While a whole company can be held accountable for the harm they have caused to a client, in some instances, the company's directors, officers or managers are sued instead. This can be the case if their decisions have caused direct harm to the client.

A management liability insurance policy can be the perfect solution as it protects your company's managerial staff from any personal losses. This, paired with SME insurance for a growing company, can ensure a business's longevity and success.
 

Therefore, it is well worth considering if you are a business owner and want to secure your company against any financial or legal emergencies.