Management liability insurance explained
Running a business or non-profit organisation carries heavy responsibilities. You are in a high-profile role with a correspondingly high-level of risk attached. If you make a mistake, even an understandable human error, then you’re likely to come under scrutiny. This could be from public bodies, regulatory organisations, the government, clients, customers, employees or even your fellow directors.
As a result, you could face expensive legal action. Even if the situation is resolved amicably, you or your company may have already suffered considerable financial loss and/or damage to your reputation.
What is management liability insurance?
Sometimes known as executive liability insurance, management liability insurance protects companies – as well as those who own and run them – against the consequences of a wide range of claims and legal action.
It is not a policy in its own right, but rather an insurance package that includes a selection of complementary liability cover policies. These can vary according to the insurance provider, and a bespoke management liability insurance package can be tailored to include only those policies required by the company taking out the cover.
Management liability insurance can be purchased by both private and publically traded companies, as well as not-for-profit organisations and charities. It generally includes two main elements. One of these is cover for individuals involved in running the company or organisation, and the other is cover for the company or organisation itself as a business entity.
What is the difference between management liability and D&O?
Confusion can arise between management liability insurance and directors’ & officers’ (D&O) insurance. While D&O insurance can often be bought as a standalone policy, it is actually just one part of a standard management liability insurance package.
D&O insurance protects the executives running a company or organisation as individuals. It ensures that they are not personally liable for any claims against the company as a whole. It also protects them in the event of legal action being taken against them personally, including by the company itself if they are considered to have acted in bad faith. It can also defend against actions brought by shareholders or other directors if they are considered to have acted negligently.
What is employment practices liability insurance?
Another common element of most management liability packages is employment practices liability insurance (EPL). This covers the company against the cost of defending legal claims by employees, for instance for harassment, discrimination or wrongful dismissal.
This is different from employers’ liability insurance, which is a legal requirement for all companies that have employees. It protects them against legal action brought by said employees regarding illness or injury incurred in the workplace.
EPL insurance is also different from standard legal liability insurance as the latter generally requires you to have a good chance of successfully defending yourself, whereas EPL can apply in any legal action arising from employment practices. Often your insurer will act to help manage and mediate the case as well as paying out financially.
Other policies frequently included are corporate legal liability, which covers claims against the company by clients, regulators, investors and so forth, and pension trustee liability, which covers individuals managing pension trusts against allegations of misconduct or incompetence.
Overall a good management liability insurance package should cover your company and its directors against a full range of possible legal action.