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Management Liability Insurance

Management Liability

What is a Management Liability Insurance Policy?

Management Liability can include several lines of insurance specifically designed to protect management in their day-to-day business decisions. Coverages intended to respond to claims arising from the numerous threats to companies and their management includes: Employment Practices, Directors & Officers, Fiduciary Liability and Crime coverage.

Employment Practices Liability Insurance - provides coverage for a broad range of employment-related actions, including discrimination, harassment and wrongful termination.

Directors & Officers Liability Insurance - provides coverage for your directors & officers for defense costs, settlements and judgments related to errors and/or omissions in conducting their duties for the company.  also provides coverage for the company, if it indemnifies the directors & officers, and the company itself if it is named in a suit.

Fiduciary Liability Insurance - policies provide coverage for an actual or alleged breach of fiduciary duty and wrongful administration of employee benefit plans or violation of ERISA regulations.  Claims often arise from allegations breach of duty by the Plan Administrators/Trustees and include: ERISA Violations, Conflict of Interest in Investment of Plan Assets, Imprudent Investment Decisions and Mishandling of Plan Funds.

Crime Insurance - covers claims related to the actual destruction, disappearance, wrongful abstraction or computer theft of money and securities and other property.  This includes employee theft/forgery, employee benefit plan dishonesty, computer and funds transfer fraud and depositors’ forgery coverage.

What Insurance Limits Should my Technology Company Carry?

There is no firm answer about how much management liability insurance coverage a technology company should purchase. It is very difficult to buy enough insurance to adequately cover all possible losses. The goal is to try to purchase a reasonable amount of insurance based upon operations and perceived risks. Two major factors contribute to a company’s level of risk:
  • The general size of the organization. The bigger the technology company the bigger the target.
  • The number of employees and the potential for employment liability claims.

Why Should My Technology Company Consider Buying This Insurance?

There is often a misconception among directors and officers of privately held technology companies that they are somewhat insulated from management-related litigation because they are not as visible as their counterparts in publicly-owned technology companies are. But based on recent surveys and court decisions, the likelihood of a director or officer of a privately held corporation being sued has increased substantially. Additionally, widespread media coverage of employment-related litigation, increased merger and acquisition activity, a still uncertain economy and regulators' enhanced scrutiny are among the reasons for the heightened exposures directors and officers face.


Here are a few important reasons to consider each insurance coverage part:

  • Directors & Officers insurance coverage will protect the assets of Directors and Officers, since they can be held personally liable for their wrongful acts committed on behalf of the corporation.  And Management must spend a great deal of time in depositions and other court hearings, and not focused on the needs of the organization.
  • Companies have Employment Practices exposure at all times including when you interview, hire, employ, promote, discipline, pay and terminate prospective, current and past employees.  Start-ups are especially vulnerable because they can’t afford a person dedicated to human resources until they reach a certain size level.
  • With respect to Fiduciary insurance coverage, Plan fiduciaries cannot protect themselves completely from personal liability under ERISA. Even with a participant directed 401(k), plan fiduciaries can be held liable for a variety of reasons including the selection of plan investment options, monitoring those investments, and educating employees on those options.
  • Most Businesses, particularly those with employees, should have some form of Commercial Crime insurance coverage. Statistics have shown that Crime claims occur frequently – not quite as high as workers compensation insurance issues but on par with employment practices claims. While claim amounts are not typically catastrophic in size, the frequency of these claims is a significant problem most employers face.
 

 


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