Formerly called Directors and officers Insurance, management liability insurance is for the senior officers, board members, and top-tier executives who are responsible for making management decisions for the company. The insurance protects them. It covers the cost of defense and legal actions taken against the senior executives of the organization or the company itself for negligence, mistakes, and errors.
The job of the management team is not easy. Each member faces personal liability for every decision they make. Someone can file you for wrong trading or make safety claims against you or your company, putting your business and personal financial stability at stake. Having an appropriate insurance plan in place makes the job a whole lot easier for the board and senior-level executives, as they can have peace of mind knowing that they will be protected from unpredictable and wrong claims. Let’s take a look at the meaning, purpose, benefits, and coverage of management liability insurance.
Understanding Management Liability Insurance
Management liability insurance can be sold as a standalone product or in combination with different policies that offer comprehensive coverage for managers and boards of directors. The insurance makes sense for directors who also happen to be the shareholders of the company. Here’s when the management liability insurance can save you from:
- Statutory liability
- Claims filed by existing and retired employees
- Making management decisions that result in a financial loss
The insurance cover extends to everyone who files a case against your company or the director, manager, and other seniors. This can be your past or current employees, customers, shareholders, and partners.
Why You Should Get Management Liability Insurance?
Having management liability insurance comes to your rescue if you fail to abide by the current regulation or pass the director’s scrutiny, which results in heavy penalties. The Companies Act of 2006 clearly specifies the list of responsibilities of each manager, director, board member, and other senior-level executive that they are supposed to comply with. Failure to follow these rules can make the directors personally liable for whatever damage occurs to the company or a third party because of their negligence.
Management liability insurance is also a must when your limited liability and legal expense coverage are not enough. These policies do not cover the director’s personal property and assets.
Legal expense coverage, on the other hand, is considered valid only if you have a strong case and are likely to win. Not only that, but the insurance can cover cyber crimes and any kind of criminal activity.
Coverage of Management Liability Insurance
Management liability insurance covers all kinds of risks that are not covered by general liability insurance. As mentioned previously, it protects the business, shareholders, owner, and other managers from claims regarding mismanagement. Let’s check out the coverage it offers.
Directors and Officers Liability Insurance
As the name suggests, the insurance protects directors and officers working for a private company or a non-profit organization against legal claims. The policy covers the cost of legal actions taken against the company or the directors.
Note that a director can be an inactive member of the company or someone who doesn’t work for the organization. They still can be sued and become part of the legal action. To protect your top directors and business associates, it’s important to have directors’ and officers’ liability insurance, which is mostly sold as a part of the management liability insurance.
Employment Practices Liability Insurance
An existing employee, past employee, or job applicant can file a case against the company or the directors for violating employment regulations. The policy protects all employees in the organization, in addition to the managers. Employment practices liability ensures that your employees do not lose their trust in your organization or any claim against your business doesn’t affect their productivity. A few common types of allegations that this insurance covers are:
- Not complying with employee’s rights
- Wrongful hire and promotion
- Sexual harassment at the workplace
Fiduciary Liability Insurance
Fiduciary liability insurance is another part of management liability insurance that covers mismanagement claims, such as the mismanagement of retirement or 401k plans. Fiduciaries who are responsible for the management of the various benefit plans must manage them carefully to avoid any violation of the Employee Retirement Income Security Act (ERISA). If a fiduciary does get sued for mismanagement of these plans, the fiduciary liability insurance, which is often bundled with the management liability insurance, will protect you against legal claims, settlement, judgment fees, etc.
Commercial Crime Insurance
Management liability comes with commercial crime insurance, which ensures protection against theft, employee dishonesty, cyber crimes, and all kinds of scams that lead to significant financial loss for the company. In addition to forgery and computer fraud, the insurance covers kidnapping and other crimes that demand ransom.
How Does Management Liability Insurance Work for Non-profit Organizations?
If you work in a non-profit organization, you must consider getting management liability insurance, as officers and directors in these companies are not as experienced in running and managing a business as private directors.
However, there’s an equal risk of getting sued for mismanagement of the company. The claims usually come from government agencies, investors, and others. The investors might withdraw their investment and your organization can incur a damaged reputation. A non-profit organization is likely to experience the same allegations as their for-profit counterparts. The coverage also includes the same and mostly covers the directors, employees, and other business associates (present, past, and retired).
With the increased number of claims made against directors and supervisors, having a management liability insurance plan in place has become a necessity. The insurance protects your senior-level executives from claims that can put your company or the director’s personal property and financial security at risk. When buying the insurance policy, pay special attention to the coverage. You can also buy the insurance bundled with other vital insurance policies mentioned above. Talk to an insurance agent to discuss your requirements and budget and buy a policy that fits your goals.