Managing a business is a difficult task filled with a wide variety of risks. In today’s corporate world, when disagreements and lawsuits can spring up from anywhere, liability insurance has become an absolute necessity. Management Liability Insurance acts as a buffer against the financial fallout of legal actions relating to managerial choices and actions, protecting both individuals and businesses.
This article will delve deep into the topic of Management Liability Insurance, explaining what it is, why it’s important, and how it may assist business leaders and organisations cope with the dangers they face in today’s litigious society. If you are a seasoned business owner, a board member, or just want to make sure your investments are safe, learning about Management Liability Insurance is a must.
What is Management Liability Insurance?
Management Liability Insurance is a crucial safeguard that shields both individuals and companies from various risks associated with overseeing a business. This type of policy extends coverage to a range of scenarios, including claims made against the company itself and its directors and officers. This protection is particularly significant for directors who also hold ownership or shareholder positions within the company.
A Management Liability Policy offers comprehensive protection in several key areas:
This facet of the policy safeguards the company, its executives, and employees from claims stemming from the issuance of penalty notices related to pecuniary or administrative fines or penalties mandated by legislative acts.
Management Liability Insurance provides a shield against direct losses resulting from employee theft and encompasses several other clauses to safeguard the company against third-party thefts.
Directors’ & Officers’ Liability Insurance:
This component of the policy is designed to shield directors and officers from claims arising due to their management decisions. It safeguards their personal assets from the financial implications of such claims.
Employment Practices Insurance:
Management Liability Insurance further extends its protection to the company, its directors, officers, and employees, guarding them against claims brought forth by current, former, or potential employees. This coverage addresses a wide array of employment-related issues.
While Management Liability Insurance doesn’t provide coverage for physical assets in the traditional sense and isn’t mandatory, it represents a cost-effective means of securing comprehensive protection for your business. This coverage proves invaluable, especially when faced with losses that could potentially harm your business. This is especially true when claims are pursued by well-resourced regulatory bodies like ASIC, ACCC, WorkSafe, EPA, and others.
In essence, a Management Liability policy covers legal expenses associated with a claim, compensatory damages awarded to third parties, and even fines and penalties, where legally permissible. Importantly, it offers a safety net for personal assets if you, as a director or officer of the business, find yourself personally liable for your actions in the course of your corporate duties. In such instances, your personal assets could be at risk to cover the costs associated with a claim. Therefore, securing Management Liability Insurance is not just advisable but essential for businesses, particularly in industries like construction where risks are prevalent.
What does management liability insurance co?
A Management Liability policy typically covers various issues that can impact a business. Here’s a concise overview of the types of coverage provided:
- Occupational Health & Safety Prosecutions: This covers legal costs arising from allegations of directors or officers breaching OHS legislation, such as prosecutions and inquiries related to workplace accidents.
- Serious Injury Claims: The policy can help with legal defense costs and fines resulting from occupational accidents, like a subcontractor’s injury during construction.
- Social Engineering Fraud: Protection against financial losses caused by cybercrimes like fraudulent emails leading to unauthorized payments.
- Taxation Investigation Costs: Coverage for expenses incurred during audits by tax authorities, ensuring protection in case of tax-related scrutiny.
- Misleading & Deceptive Conduct: This includes legal costs arising from accusations of false statements or deceptive practices by directors, officers, or employees, potentially damaging the business’s reputation.
- Improper and Illegal Conduct: Protection against actions initiated by regulators, such as ASIC, for improper or illegal activities by the company’s management.
- Statutory Breach of Duty: Coverage for fines and penalties resulting from breaches of statutory duties under various laws.
- Employment Issues: This includes claims related to unfair dismissal, discrimination, harassment, and other employment-related disputes.
- Defamation: Protection in case of defamation claims against directors or officers.
- Breach of Intellectual Property Rights: Coverage for legal costs arising from allegations of intellectual property infringement.
- Employee Fraud & Theft: Protection against losses resulting from employee theft or fraud, including theft of money or property.
However, it’s important to note that Management Liability insurance generally does not cover:
- Bodily injury and property damage claims.
- Situations involving insolvency.
- Dishonest or criminal actions (unless specified under the Crime section).
- Known claims and circumstances that existed before obtaining coverage.
Is management liability insurance the same as professional indemnity?
No, management liability insurance and professional indemnity insurance are not the same. The key differences are:
• Management liability insurance covers claims arising from the decisions and actions of directors and officers in managing the company. It protects the personal assets of directors and officers. Professional indemnity insurance covers claims arising from the professional services provided by the company. It protects the company itself.
• Management liability insurance covers risks like mismanagement, breach of duty, and wrongful trading. Professional indemnity insurance covers risks like professional negligence, errors, and omissions.
• Management liability insurance covers all types of companies. Professional indemnity insurance is more specific to companies that provide professional services like consulting, accounting, engineering, etc.
• Management liability insurance typically provides broader coverage. Professional indemnity insurance is tailored to the specific professional services of the company.
Is management liability insurance on a claims made basis?
Yes, management liability insurance is frequently written on a “claims-made” basis. This means that only claims filed during the insurance period will be covered by the policy. Even if the incident that led to the claim happened while the policy was in existence, it will not be covered if the claim is made after the policy has expired. This is distinct from “occurrence” insurance, which pay out regardless of when a claim is made for incidents that happen during the policy period.
It’s crucial to remember that with a claims-made policy, you lose coverage for any occurrences that occurred during the policy period but have not yet been reported when you cancel or do not renew your policy. Many firms purchase “tail” coverage or an extended reporting period, which prolongs the time in which a claim can be reported and covered, to guard against this.
Types of Management liability Insurance
There are several different types of management liability insurance, each with its specific coverage and protection. These include:
- Directors and officers (D&O) liability insurance
- Employment practices liability (EPL) insurance
- Fiduciary liability insurance
- Special crime insurance
- Professional Liability Insurance
Director and Officer Liability Insurance:
Directors’ and officers’ insurance coverage covers individuals’ damages if they are sued due to their job as company directors.
Director and Officer Liability Insurance is crucial for companies as it protects their leaders from the financial consequences of lawsuits related to their decisions for the company’s benefit.
Employment Practices Liability Insurance:
Employment Practices Liability Insurance (EPLI) is a subcategory of Liability Insurance. This coverage offers protection against specific employment-related claims. For example, it can protect your business against following things:
- Age Discrimination
- Family and Medical Leave Act Violation
- Wrongful Discipline
- Wrongful Failure to Promote
- Wrongful Termination
- Sexual Harassment
- Deprivation of Career Opportunities
- Wrongful Infliction of Emotional Distress
- Mismanagement of Employee Benefit Plans
Employment Practices Liability Insurance will cover your legal fees, settlement costs, and other expenses associated with an employment-related lawsuit or legal claim.
However, it is essential to note that this coverage is not unlimited and may exclude specific claims, such as:
- Financial penalties
- Wages that you should have received
- Intentional employer wrongdoing
- Employee property damage.
- Employees’ alleged injuries
- Dispute over unemployment benefits
- Disputes over workers’ compensation claims
Fiduciary liability insurance coverage:
Fiduciary Liability Insurance is a type of insurance coverage designed specifically to protect plan administrators and individuals with fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA). This coverage offers protection against fiduciary misconduct, including:
- Invalid Denial or Change in Benefits
- Plan Administration Errors or Omissions
- Improper Counseling
- Conflicts of Interest and Illegal Transactions
- Poor Asset Investment
- Wrong Selection and Supervision of Third-Party Service Providers
Here are a few exclusions in Fiduciary liability insurance coverage.
- criminal acts
- intentional wrongdoing
- intentional embezzlement of fidelity bonds
- deliberate embezzlement of corporate funds
Special Crime Insurance Coverage:
Special Crime Insurance covers losses from kidnapping. Crime insurance also covers harm to a person and property if ransom is not paid.
Special Crime Insurance covers the following things:
- bodily injury
- Threat to kill to insured person
- Property damage
- leak trade secrets or other private information
- wrongful detention
Professional liability insurance:
Professional liability insurance (PLI) protects the following professional against negligence claim:
- Information technology specialists
Professionals with general liability require Professional liability insurance. This is because the public liability insurance policies do not offer protection against negligence, malpractice, mistakes, or misrepresentation claims.
It is advised to select at least two types of coverage to be eligible for a management liability “package” policy.
This management liability “package” insurance is often only accessible to privately owned companies, nonprofit organizations, and small publicly traded businesses with annual sales of less than $25 million.
Management liability Insurance Cost
Management liability insurance costs vary by coverage and type:
Fiduciary liability insurance cost range from $500 to $2,500 per year
Special crime insurance costs, on average, between $650 to $2,500 yearly
Employment practices liability insurance average costs $182 per month and $2,185 annually.
Professional liability insurance for a small business costs $59 per month and $708 annually.
D&O liability insurance costs $103 per month and $1,240 annually.
Best Management liability Insurance companies
Here are some of the best management liability insurance companies.
Travelers is the best overall provider of management liability insurance, according to Investopedia. It offers comprehensive coverage for public, private, and nonprofit organizations, with flexible limits and deductibles. Travelers also has a reputation for excellent customer service and claims handling.
Founder Shield is the best provider of management liability insurance for startups, according to Investopedia. It specializes in high-growth and high-risk industries, such as technology, biotech, fintech, cannabis, and more. Founder Shield can customize your policy to fit your specific needs and budget.
CoverWallet is the best provider of management liability insurance for nonprofit organizations, according to Investopedia. It is an online broker that works with multiple carriers to find you the best rates and coverage options. CoverWallet also offers a user-friendly platform that lets you compare quotes, buy policies, and manage your insurance online.
HUB International is the best provider of management liability insurance for small businesses, according to Investopedia. It is a global insurance broker that has access to over 200 carriers and can tailor your policy to your industry and location. HUB International also offers risk management services and claims advocacy to help you prevent and resolve disputes.
AIG is the best provider of management liability insurance for international companies, according to Investopedia. It has a global presence and can cover your operations in over 200 countries and jurisdictions. AIG also offers specialized coverage for emerging risks, such as cyber liability, environmental liability, and political risk.
The Hartford is the best provider of management liability insurance for combined employment practices liability insurance (EPLI) policy, according to Investopedia. EPLI covers claims related to employment issues, such as discrimination, harassment, wrongful termination, and more. The Hartford offers a bundled policy that includes both management liability and EPLI coverage at a competitive price.