Management liability is an umbrella term that includes directors and officers liability. A management liability policy protects you and your company against any risks and exposures associated with running the company. The legal concerns for directors and officers, along with board members, have become more concerning in recent years. Those assuming these positions are constantly faced with emerging risks such as data privacy claims, greater shareholder activism, environmental litigation, and an increase in securities class actions and merger-objection suits.
Without adequate protection, in place, you could be risking, not only your business but also your personal assets as well. It’s not only public companies that face management liability claims, but also private and non-profit entities that often become targets of allegations of unfair business practices, conflicts of interests, mismanagement of funds, a release of non-public information, and other issues that could easily result in litigation.
Defense of an accusation can be costly
The legal costs to defend allegations of wrongful acts alone can be financially crippling for most businesses and individuals. The purpose of professional indemnity (PI) insurance is to respond to claims from third parties with respect to providing professional and/or specialist services. The policy will not respond to claims that you mismanaged your company and as a result, caused a significant loss to other parties. You would need to purchase separate insurance to address this particular exposure.
Directors and officers liability protection include any past, present or future directors and officers, plus anyone else that is involved in the management of a company for claims alleging a wrongful act and for which the company does not grant indemnification to such persons. Employees can also be covered under this policy.
Where PI Insurance will cover the activities of the company, a management liability policy focuses on the act of running a company and any subsequent exposures faced in doing so. Your management liability insurance covers damages and claimant costs awarded against you, defense costs, any ensuing investigation costs, and civil fines and pecuniary penalties.