Why You Need Management Liability Insurance

With the rapid increase in claims against business directors and officers, having a Management Liability Policy is a worthwhile investment that protects your company or director if a claim is made against them. Reports from the Ministry of Justice on employment tribunals show that employee claims have increased by 25% in the past year. As the litigation culture grows, the need for a Management Liability Insurance Policy is apparent.

What is a Management Liability Policy?

The covers, collectively described as Management Liability, are designed to cover the cost of legal expenses and compensation which arise from the allegation of a negligent or wrongful act by a company’s director or the company itself in the management of the business. These covers are about the corporate governance of the business itself, rather than its operations. There are three areas of cover in this space;

Directors and Officers cover provides directors protection where there is an allegation of a direct causational link between an alleged error, negligence or wrongdoing and loss by a third party.

Employment Practices Liability provides cover for issues that arise from allegations of some form of wrongful act concerning employees.

Entity cover provides cover for the business if they are accused of wrongdoing in the governance of the business; this last section is usually only available to private limited companies.

What is a wrongful act?

According to the Association of British Insurers, wrongful acts include:

• Breach of duty
• Breach of trust
• Neglect
• Error
• Misleading statements
• Wrongful trading

Mistakes happen. However, even if a director or officer acted in good faith and did not intend to commit a wrongful act, this could still trigger a claim.

How Management Liability Insurance protects you

It pays your defence costs and any final settlement or compensation award following legal action against you or your company. Your policy covers a wide range of claims, from wrongful trading to breach of trust.

Why you should consider Management Liability Insurance

• Your senior leaders could lose their positions as directors if a claim is brought against them and they don’t have management liability insurance.
• The cover extends to anyone who makes a claim against your company, including competitors, shareholders, suppliers and employees.
• You are protected against the fallout from rising company regulation and greater scrutiny of directors’ duties, actions and responsibilities. The Companies Act 2006 highlights statutory obligations that a director must comply with and could be held personally liable in the event of a breach.