Management liability insurance protects businesses and corporations from legal proceedings, including directors and officers liability, employment practices liability, commercial torts, and fiduciary liability. It is not the same as errors and omissions policies and is important for protecting shareholder investments and company assets.
Insurance is often intended to protect the assets and interests of the insured. Not exclusive to personal needs, insurance is also a likely component of businesses and corporations. Management liability insurance is a comprehensive policy that protects shareholder investments and company assets from legal proceedings. The directors and officers liability axis, for example, protects those employees from allegations of mismanagement, while employment practices liability safeguards against claims in the workplace. Commercial torts and fiduciary liability are likely to be additional components of the policy to protect against civil damage claims and mishandling of employee benefit plans, respectively.
Management liability insurance is often a group policy that includes directors and officers (D&O), employment practices, and fiduciary liability coverage. The end result is a comprehensive plan that protects private businesses and public corporations from common legal charges. Not only are board members protected from liability they may personally incur in making decisions, but the corporation is protected as well. This means that the assets of a business and the personal property of the owners cannot be sought as awards 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 against mismanagement claims often related to mutual funds or failure to follow instructions. Therefore, under the umbrella of administrative liability insurance is D&O liability insurance. This plan protects directors and officers from civil lawsuit lawsuits and legal defense costs associated with lawsuits. Private, public, and non-profit organizations that make up a board of directors are likely to need this policy because of the increased exposure to fuzzy management groups.
Employment liability for practices is another area in which officers and directors are often vulnerable. This policy, often included in the liability insurance plan, offers protection against claims filed by former, current or potential employees. Among the most common of these claims is discrimination, particularly with respect to termination of employment or refusal to hire. Employment liability also protects against allegations of sexual harassment, informal proceedings, and unwarranted failure to promote.
In addition to allegations of mismanagement and malpractice, directors and officers may also be subject to claims for civil damages or commercial torts, relating to the company’s real and intangible assets. Misrepresentation, for example, is a type of fraud whereby one of the company’s officials may falsify information to induce or discourage another person from acting. Therefore, an important feature of the administrative liability insurance policy can be commercial liability coverage. This is likely to protect directors and officers from claims such as falsifying information to acquire new contractual relationships.
There are many business issues, including those related to fiduciary relationships. A fiduciary is a person responsible for acting in the best interest of another person. Fiduciary liability insurance often protects a company officer who has discretionary authority or helps administer a benefit program, such as health insurance or a retirement account. Without this coverage, the officer may be liable for losses incurred in the benefits program due to alleged errors or breaches of obligation.
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 can also request that a company maintain employment practices liability coverage. In this way, a management liability policy can meet shareholder requirements and also protect the corporation against financial loss.
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