Management Liability Insurance

What Is Management Liability Insurance?

When you are running a business, there are many risks that are ever-present in your day-to-day business dealings and decisions. No matter how big or small your company is, your company and its leaders can be affected by litigation, and your executives and board of directors are particularly exposed without the proper protection.

Management liability insurance is a package of coverages designed to protect your company and the people leading it from a variety of common business risks. Our Management Liability policy offers industry-leading directors & officers (D&O) and employment practices liability insurance (EPLI) to businesses of all sizes and industries.

Who Is It For?

The package is ideal for smaller businesses that will likely encounter fewer and less expensive claims. Non-profits, private companies, and smaller publicly traded companies can benefit greatly from a compromise solution such as management liability insurance, due to its broad, cost-effective coverage.

Does this sound like something your business needs? You can get an instant management liability insurance quote in under 10 minutes with Embroker.

Large enterprises will typically need to look towards standalone policies to properly address their management exposures.

Why Do You Need Management Liability Insurance?

A company’s management team can be held personally accountable for the consequences of company business decisions.

For example, an investor could allege that the officers of the company didn’t act in good faith when making critical decisions, or that they misrepresented the situation before securing an investment. The investor may bring forth a lawsuit in an attempt to recover their losses.

Similarly, an employee may feel that the company didn’t do enough to protect them from the discriminatory behavior of their co-workers. These claims are more than likely to not only be brought against the company but also against management, putting their personal assets at risk.

Whether the company is dealing with an unsatisfied investor looking to recoup a loss, an employee alleging discrimination, or a governmental audit, its leadership could be targeted legally.

The good news is that insurance products have kept pace with the risks. This means that with a liability management policy it’s possible to get substantial protection from a variety of such risks at a very reasonable price.

What Does Management Liability Insurance Cover?

Directors & officers (D&O) insurance will protect a company and its leaders from financial loss resulting from litigation and regulatory investigations. This policy protects your corporate leaders from litigation related to misuses of company funds, misrepresentations of company assets, breach of fiduciary duty, non-compliance, and more.

Most importantly, this policy protects the personal assets of the company’s top management as well as company assets. Naturally, the policy will cover defense costs related to all lawsuits and investigations against a companies directors and officers as well.

It will also cover any reimbursement costs that the company might have when it comes to indemnifying upper management for losses they may have incurred.

Employment practices liability insurance (EPLI) covers legal costs and damages resulting from employee lawsuits filed against the company. EPLI will protect your company and its management in cases of alleged harassment, discrimination, wrongful termination, failure to promote, and more.

EPLI covers both defense costs when your company is sued by a current or former employee and it will cover all damages and settlements that may result from these lawsuits.

Additional Recommended Management Liability Policies

Fiduciary Liability Insurance: This policy will cover defense costs and damages related to claims against fiduciaries who administer and oversee employee benefit plans. It is basically an errors and omissions policy specifically designed for trustees and other fiduciaries who are in charge of running complex company benefit programs.

Commercial Crime Insurance: Protects your company property and assets from crimes that are committed both by third parties outside of your company and employees. This policy can protect your company and reimburse you for lost merchandise, cash, securities, or property. The crimes that a commercial crime policy typically covers and protects from include embezzlement, forgery, theft, fraud, and burglary. The policy can protect the property and assets of your directors and officers as well. 

Kidnap and Ransom Insurance: This policy reimburses your business in the case of financial losses that are related to ransom, extortion, or kidnapping demands. Companies that have directors and officers that travel regularly, especially to high-risk areas, should definitely consider purchasing this coverage.

What’s Not Covered?

While D&O and EPL do cover very serious and common risks that businesses face on an everyday basis, there are other common exposures that aren’t covered by these two policies. To create a complete and thorough insurance package for your company and your management, the following coverages are also highly recommended:

Professional Liability Insurance: Commonly referred to as errors & omissions insurance, this policy protects you from claims of negligence, errors, and malpractice while providing a professional service.

Cyber Liability Insurance: Protects your company in the event of a data breach or cyber attack. If your company is attacked and sensitive business information is compromised, this policy will pay the costs of notifying your customers, civil damages if you are sued, and even computer forensics.

Workers Compensation Insurance: One of the rare business insurance policies that your company is legally required to buy, workers compensation covers claims related to staff injuries, including medical expenses, lost wages, and rehabilitation.

Business Owners Policy: Another basic insurance product that just about every business should own, a BOP will bundle commercial general liability, commercial property, and business interruption insurance into one package.

Typically Management Liability Exclusions

As we already covered, there are many other policies that your company might need in order to protect your business from the many exposures that it could face potentially face.

However, since a management liability policy is most commonly made up of directors and officers and EPLI coverage, that means that exclusions that most commonly apply to these two types of coverage are the exclusions that you need to be most aware of when putting together your management liability policy.

Let’s that a look at some of the most common D&O exclusions and EPLI exclusions.

Common D&O Insurance Exclusions

If the lawsuit that was filed against your directors or officers is related to something that they did in order to bring themselves personal gain or an undeserved advantage, the policy will not cover such claims.

This also goes for any claims related to dishonest, wrongful, or fraudulent conduct demonstrated by your directors and officers. It’s important to remember these distinctions because while negligence is covered, knowingly committing acts that can be deemed dishonest and fraudulent will not be.

A D&O policy is typically written as a claims-made policy, which means that it only covers your management and company if the claim is filed during the policy period. This means that prior acts won’t be covered.

There is a thin line between speaking frankly and speaking ill of someone, which is why a D&O policy typically will not cover claims that are related to acts of slander, libel, and defamation.

Common EPLI Exclusions

One of the most common types of claims that are excluded from an EPLI policy is wage and hour claims since they are so prevalent and often very expensive. This typically includes claims of employee misclassification, missed meal or rest breaks, or unpaid wages.

Some EPLI policies won’t cover punitive damages if the director or officer is found guilty of something such as sexual harassment, especially if it is proven that the conduct was intentional.

Because of these potential exclusions, it’s important to work closely with an experienced broker when putting together the right management liability policy in order to make sure that you and your directors and officers are very aware of what the policy covers and what it does not.