Essential Guide to Management Liability Insurance 

We know it’s a busy job running a business and it’s our job as an insurance broker to help you identify the risks you face and advise you how to protect your business with the right insurance cover. This guide sets out the insurance protection available to directors, officers, managers, and board members of a company, that the pandemic, expensive employment tribunals, regulatory investigations, contract disputes, insolvency related D&O claims, and fraud issues have all created greater levels of scrutiny and vulnerability. 

Businesses are feeling exposed and in need of help to build an insurance program that increases their financial and legal resilience. One of the solutions is a package of insurance covers that proactively helps manage your people, contracts, premises, and data. 

In this guide

• What is Management Liability Insurance
• What’s covered by each of the sections of a Management Liability insurance policy?
• Why is Management Liability Insurance important?
• How do I buy Management Liability Insurance?

What is Management Liability insurance?

Management liability insurance is a package of insurances designed to protect the directors, officers, managers, and board members of a business against alleged mismanagement. It is often assumed, incorrectly that the directors of a company are not personally liable for mistakes made but even in a limited company the personal liability of the individual directors is unlimited. 

Management liability insurance usually consists of Directors & Officers Insurance, and the option to add Employee Practices Liability and Company Legal Liability to your policy. 

What is Directors & Officers liability insurance?

Directors and officer’s insurance is protection against the financial costs of action taken against directors and officers of your business and will pay for the losses of the directors and in the case where a company is required by law to cover these costs, the policy may indemnify the company for such losses.

What is Employment Practices Liability insurance? 

Employment practices liability insurance protects employers if a claim is made by employees arising out of alleged wrongdoing related to their employment, examples include unfair dismissal, discrimination or harassment. This type of insurance can be added to D&O cover on a management liability insurance policy. 

What is Company Legal Liability insurance? 

Company legal liability insurance covers the legal costs, awards and settlements for any claim or regulatory action brought against the company either as the sole target or jointly with one or more individuals. Company legal liability insurance can be added to D&O cover on a management liability insurance policy. 

Why is Management Liability Insurance important?

The current recession has seen business closures spiking throughout the UK. Compared with 2020, the private sector business population has decreased by 6.5% according to statistics from the UK Department for Business, Energy & Industrial Strategy [1] and as such we expect to see a rise in claims made against the directors of businesses as management teams are under pressure to make critical decisions as they navigate the post-covid business landscape the result is an increase in litigation cases. If businesses do not buy Management Liability Insurance, they face a greater risk of not being able to defend themselves against allegations of mismanagement, because the cost of defending a legal action and the possible damages can be financially devastating.                

How can a Management Liability Claim arise?  

Claims can come from a range of circumstances, below we list some of the most common; 

• Breach of Health & Safety law.
• Financial Mismanagement.
• Failure to protect data.
• Allegations relating to employment law.
• Pension investment error.
• Company Failure – Collapse of the company . 

How do I buy Management Liability Insurance? 

We would always advise that you talk to an insurance broker when buying management liability, we can use our expertise to gather the information we need together with our extensive knowledge of the market to present you with the right cover for your business. 

To get a quote we would usually need to know what you do by asking several questions about your business including whether you’re a sole trader or limited company. We’ll need to know where your clients are based, what your annual turnover is and how many members of staff you have. With this information we can talk to our insurer partners and present back quotes to you. 

We know that people are short on time and it can be tempting to buy this type of cover online with the click of a few buttons, but it’s important to know that when you buy insurance online you aren’t getting any advice, you are in effect responsible for reading the documents, understanding what’s covered and what’s not covered as well as any terms and conditions applicable to your policy, and there isn’t necessarily any difference in premium. In fact if you buy the wrong thing online there is no recourse, if you use an insurance broker it’s our responsibility to give you the right advice and we’re insured if the advice we give you falls short. 

Buying insurance through a broker is effectively outsourcing the responsibility of buying insurance to an expert, like using an accountant or lawyer. 

We also have an in-house claims team who are on hand to help you, if there is even the slightest hint a claim might be on the horizon our team are on hand to help you get the right advice, either from the team or from the insurers legal team of experts, so you don’t have to try and navigate the claims process alone. 

What to do next

There is no doubt that the increasing litigation created by the fallout from covid-19 restrictions, territorial and regulatory impact of Brexit have put increased pressure on management teams who are now exposed to new risks which coupled with the recession are testing business resilience like never before. However, it is important that business leaders can operate within the scope of their role with the comfort that if an allegation of wrongdoing is made there is legal help and advice available to help them defend a case against them. 

If you would like to talk to us about your Management Liability or if you have any questions please do not hesitate to contact us on 0115 9620855

Further Reading

If you found this useful, you might like to read these articles:

• How to avoid underinsurance and why it matters.
• Why every insurance broker should have an in-house claim team.