Responsibility involves liability, which means that the actions and decisions of management could lead to lawsuits from employees, customers and stakeholders. Management liability insurance can help provide financial protection from this risk. However, to control all your risks, you may need more than one type of coverage.
What is management liability coverage?
Management liability insurance, also called executive liability insurance, provides coverage for organizations and their managers and executives for claims related to management actions and decisions.
If an organization or its executives are sued for actions related to the management of the company, management liability insurance can help pay for legal costs, jury awards and settlements, in accordance with the terms of the policy.
Management liability insurance is not a single type of coverage. Rather, it encompasses several coverage types that may be available as a package or as standalone policies. Common coverages include employment practices liability, directors and officers and fiduciary liability insurance. Although all three policy types can provide financial protection against lawsuits involving management, they differ in terms of the types of lawsuits they cover, meaning many businesses need all of them.
Employment Practices Liability Insurance
Employment practices liability insurance (EPLI) is a type of liability coverage that’s specifically designed for lawsuits alleging a violation of employee rights, including the rights of job seekers and former employees.
Sexual harassment is a common source of EPLI lawsuits. Harassment may come from supervisors and managers, as well as from coworkers. Employers may even be sued over sexual harassment from customers or clients if they failed to protect their employees.
Discrimination is another common reason for EPLI lawsuits. Employers are prohibited from discriminating against employees or applicants based on various protected classes, such as race, religion, sex, national origin, disability and more.
For example, if an employer fires or disciplines an employee due to pregnancy, the employee could accuse the employer of discrimination resulting in wrongful termination, wrongful discipline or emotional distress. As another example, if an employer decides against hiring a candidate, terminates an employee or decides not to promote an employee due to the individual’s gender, the employer could face a lawsuit alleging discrimination.
Directors and Officers Liability Insurance
Both a company’s leadership and the company itself may be named in a lawsuit alleging mismanagement. For the company’s leaders, this could place their personal assets at risk.
Directors and officers (D&O) liability insurance helps to protect both the individual officers or board members and the organization as a whole against lawsuits stemming from actions that the officers or board members make while serving the company.
For example, if the leaders of a company fail to disclose material facts to investors, the investors could file a lawsuit against both the leaders and the company. Other claims could involve allegations that a company made but failed to live up to declarations about being socially responsible, environmentally friendly (greenwashing) or technologically progressive (AI washing).
Fiduciary Liability Insurance
Many employers offer health plans, retirement plans and other employee benefits. In doing so, companies take on a fiduciary duty to manage these employee benefits with the participants’ best interests in mind.
A breach of fiduciary duty could result in a lawsuit. For example, if a retirement plan administrator makes poor investment decisions that result in significant financial losses, plan participants could file a lawsuit accusing the administrator of mismanaging the plan. Employers can purchase fiduciary liability insurance to help cover risks such as these.
Is management liability coverage necessary?
Although management liability insurance is not typically a legal requirement, having this coverage may be a smart idea for two major reasons:
- Management-related risks usually aren’t covered under standard policies. Some of the most basic business insurance policies, such as general liability, commercial auto and business property insurance, generally do not cover management-related exposures, which could leave your business vulnerable in the case of a lawsuit.
- Lawsuits alleging mismanagement can be expensive. Lawsuits from employees, investors and other stakeholders are common and could be financially devastating without adequate insurance coverage.
Additional Coverages to Consider
While a commercial package policy that includes EPLI, D&O and fiduciary liability insurance can help cover a number of management-related lawsuits, many organizations will need additional coverages, such as the following:
- Cyber Liability Insurance: The rise of cyberattacks and data breaches has created new risks for management. After a cyber incident, data breach notification laws typically hold organizations responsible for notifying those impacted by the incident. Organizations may face substantial financial losses due to notification costs, business interruption and potential lawsuits for failure to prevent the breach. A D&O policy could provide coverage for lawsuits accusing the company’s leadership of negligence related to the cyberattack. However, many organizations need additional cyber liability insurance to cover their risks more fully.
- Crime Insurance: Fraud, burglary, robbery and other crimes can hurt a company’s bottom line. But, they may also hurt an organization’s reputation if the crime was committed by employees or if the company was negligent in failing to prevent the crime. Commercial crime insurance can provide protection for these risks.
- Kidnap, Ransom and Extortion Insurance: Business leaders may be targets for kidnap and ransom crimes. This risk is especially high for business leaders who travel to countries where such crimes are common. Kidnap, ransom and extortion insurance can help protect these employees and the organization as a whole.
- Errors and Omissions (E&O) Insurance: Also called professional liability insurance, an E&O policy can help protect individuals who consult or offer professional advice against liability if an error or omission occurs during a professional service. For example, if an accountant misses a deadline and this results in financial loss for a client, the accountant could face an E&O claim.
Is your organization protected?
Do you have coverage for your management liability insurance risks? Don’t wait until you’re hit with a lawsuit to secure the right insurance for your business. Higginbotham’s business insurance specialists can help you secure the coverage you need. Request an insurance quote to learn more.
