Insurance is often intended to protect the assets and interests of policyholders. Not exclusive to personal needs, insurance is also a likely component of businesses and corporations. Management liability insurance is a comprehensive policy that protects shareholders’ investments and company assets from legal proceedings. The axis of directors & officers liability, for example, protects those employees from allegations of mismanagement, while employment practices liability safeguards against workplace claims. Business torts and fiduciary liability are likely to be additional components of the policy to protect against claims of civil wrongs and mishandling of employees’ benefits plans respectively.
Management liability insurance is often a collective policy that includes directors & officers (D&O), employment practices and fiduciary liability coverage. The end result is a comprehensive plan that protects privately held companies and public corporations from common legal allegations. Not only are board members safeguarded from liability they may personally incur in making decisions, but the corporation is also protected. This means a company’s assets and the owners’ personal property cannot be sought as rewards for punitive damages in a civil lawsuit.
The scope of insurance required for a business is often considerable. In addition to property and general liability, directors must also guard themselves from mismanagement claims often concerning investment funds or failure to perform instructions. Thus, under the umbrella of management liability insurance is D&O Liability Insurance. This plan safeguards directors and officers from civil suit judgments and legal defense costs associated with lawsuits. Private, public and non-profit organizations that assemble a board of directors likely need this policy because of increasing exposure with diffused groups of management.
Employment practices liability is another area in which officers and directors are often vulnerable. This policy, often contained within the management liability insurance plan, offers protection against claims asserted by former, current or potential employees. Among the most common of these claims is discrimination, particularly with regard to termination of employment or refusal to hire. Employment liability also safeguards against allegations of sexual harassment, informal procedures and wrongful failure to promote.
In addition to allegations of mismanagement and poor practices, directors and officers may also be subject to claims of civil wrongs, or business torts, concerning the company’s real and intangible assets. Misrepresentation, for example, is a type of fraud whereby one of the company’s officers may falsify information to induce or discourage another person to act. An important feature of the management liability insurance policy may thus be business tort coverage. This is likely to safeguard directors and officers against such claims as those of falsifying information to acquire new contractual relationships.
Many business torts exist, including those concerning fiduciary relationships. A fiduciary is a person responsible for acting in the best interests of another person. Fiduciary liability insurance often protects a company’s officer who has discretionary authority over or assists in the administration of a benefits program, such as medical insurance or a retirement account. Without this coverage, the officer may be held accountable for losses to the benefits program incurred because of alleged errors or a breach of duties.
It is important to note that management liability insurance is not synonymous with errors and omissions policies. The latter generally refers to product performance failures and negligence rather than the roles and duties of officers. A growing number of company directors and investors prefer evidence of D&O insurance coverage to protect their interests. Those same professionals may also request that a company maintain employment practices liability coverage. In this manner, a management liability policy may meet the requirements of shareholders and also protect the corporation against financial loss.
