MANAGEMENT LIABILITIES —PROTECTING YOUR BUSINESS AND YOUR PERSONAL ASSETS

As a Director, Officer or Senior Manager, you play an active role in the day-to-day management and success of the business. Having autonomy and making strategic and operational decisions can be empowering and rewarding—but also risky. You’ll be exposed to legal actions against the company and yourself. The consequences can be severe, from being disqualified as a director to potentially leading to imprisonment if criminally liable.

Let’s examine the management liability insurance and related cover available to protect you and your business.

WHAT IS MANAGEMENT LIABILITY INSURANCE?

Management liability insurance is an insurance package designed for small and medium-sized private companies (SMEs) and limited liability partnerships (LLPs).

By combining three areas of risk into one single policy: Directors and Officers Liability (D&O), Employment Practice Liability (EPL) and Company Legal Liability (CLL), it offers financial protection to both senior management and the company against a range of allegations.

WHAT DOES DIRECTORS AND OFFICERS INSURANCE COVER?

Protecting the personal wealth of directors, officers and employees, generally speaking, D&O covers the following types of claims: y Securities violations—insider trading or securities fraud. y Mismanagement— failure to properly manage company finances or operations. y Harassment and discrimination. y Shareholder derivative suits—claims brought by shareholders, including other directors. y Breach of fiduciary duty—self-dealing or conflict of interest. y Regulatory investigations—failure to comply with environmental or trading standards laws and regulations.

THE MAIN BENEFITS OF HAVING A D&O INSURANCE POLICY INCLUDE: y Financial protection—defending against claims and any damages awarded. y Legal representation—experienced lawyers who can defend against claims and negotiate settlements. y Reputation protection—effective dispute resolution limits the possibility of negative publicity. y Attract and retain top talent— demonstrates the company’s commitment to protecting its leaders. y Peace of mind—knowing they, and their personal assets, are protected.

WHAT DOES EMPLOYMENT PRACTICE LIABILITY INSURANCE COVER?

Protection against legal costs and financial award, EPL insurance covers the following types of claims made by employees or job applicants: y Wrongful termination—discrimination or retaliation. y Discrimination—allegations of discrimination based on race, gender, age, religion, or other protected class. y Harassment—sexual harassment, racial harassment, or other forms of workplace harassment. y Retaliation—for reporting illegal or unethical behaviour. y Wage and hour violations—such as failure to pay overtime. y Employee benefits claims—for example, failure to provide required benefits. y Negligent hiring—claims the business was negligent in hiring a dangerous or unqualified employee.

WHAT IS CORPORATE LEGAL LIABILITY INSURANCE?

CLL insurance is similar to D&O insurance but defends claims made against the company as opposed to individuals: y Maladministration of a company pension. y Employee benefit claims. y Breaches of data protection. y Corporate identity crime. y Health and safety, taxation or other regulatory claims.

WHY DO YOU NEED MANAGEMENT LIABILITY INSURANCE?

Management liability insurance is important to SMEs due to the following factors: y SMEs are just as vulnerable as large companies. y Directors’ personal assets are at risk. y Defending legal action can be costly. y Employment practice claims remain a significant threat to directors. y Protection in case of bankruptcy or insolvency.

Even if a claim is false, you still have to defend it. The legal costs and other expenses incurred during a dispute could be significant, not to mention the damage to your reputation and your business.

If you have any queries about this article, please do not hesitate to get in contact with your dedicated SMTA point of contact, Howden Skimming: Email: howden. skimming@marshcommercial.co.uk

by Darren Fletcher, Legal Advisor at Lawgistics