“I was sued by GM,” my client said, raising her hand and waving it in a You can stop now gesture. “Management liability insurance saved us.”
It took a minute for the acronym to sink in. I tried to mask my surprise when I finally understood what she’d just told me. “You were sued by General Motors?” I asked. “Don’t you mean your company was sued?”
“Both,” she explained. “Years ago, I was on the board of directors of a parts manufacturer that supplied GM. An issue arose, and a lawsuit was served that named not only our company, but each member of the board individually.” She tapped the surface of the conference table at which we sat. “I want that coverage for this company as well.”
I leaned back in my chair, stunned. We’d been reviewing her current insurance program and I’d just suggested she consider adding management liability insurance. It was done within the week. Because of prior experience, she knew the value firsthand.
Management Liability Insurance
Management liability insurance transfers risk off the shoulders of management to the insurance company. It protects against the liabilities of running a company, primarily in the areas of governance, finance, employee benefits, and management. The protection usually includes legal defense, which many times is the most valuable portion. It comprises separate coverages, all of which can be chosen à la carte. These are:
- Directors and Officers Liability (D&O)
- Employment Practices Liability (EPLI)
- Fiduciary Liability
- Cyber Liability
- Crime Insurance
- Kidnap and Ransom Insurance
It protects against the liabilities of running a company, primarily in the areas of governance, finance, employee benefits, and management.”
A management liability insurance package is completely customizable. All coverages may be purchased, or just the ones deemed necessary. And each coverage can have different levels of protection. For example, a company can select $1,000,000 in directors and officers liability, but $500,000 in employment practices liability. Each coverage can even have sub-options, each with separate protections and levels of coverage. As an example of such a sub-option, crime insurance may include employee theft, social engineering, forgery or alteration, funds transfer fraud, and others.
One of the best means to understand coverages is through claims examples, some from our own clients:
- Directors and Officers Liability (D&O): A supervisor makes repeated unwanted advances toward an employee. The employee claims sexual harassment (covered under EPLI), but they also allege the board is liable since they failed to take measures to prevent the situation. The D&O policy protects and defends the board.
- Employment Practices Liability (EPLI): During an organizational restructure, a terminated long-term employee alleges wrongful termination. Our client’s EPLI policy protects them against this accusation. In addition, the employee alleges defamation due to comments made during the process to non-board members, decreasing the employee’s possibility to be hired by an outside entity. That protection comes from the D&O policy.
- Fiduciary Liability: A large retail firm is sued for breach of fiduciary duty when a new CFO moves the company’s retirement plan to mutual funds that later performs poorly.
- Cyber Liability: One morning when the office employees of an electrical contractor login to their computers, a message appeares on their screen demanding 10,000 bitcoins as ransom to regain control of the company systems.
- Crime Insurance: An employee of a local nonprofit is found guilty of forty counts of embezzlement over a ten-year period.
- Kidnap and Ransom Insurance: While vacationing in Ireland, a high-profile executive’s daughter is kidnapped from the first-floor patio of their B&B and held for ransom.
Please contact me with any management liability insurance questions you may have.
David McCaleb LinkedIn
David is an insurance agent and marketer at Bankers Insurance LLC.