Management Liability Insurance + Why You May Need It

As Crane’s Management Liability & Cyber Practice Leader, Beth Martin knows a thing or two about keeping businesses’ information safe from emerging threats. 

We caught up with Beth on management liability insurance and why you may need it in your line of business. Read on for our Q&A with her in the first installment of our two-part series with her, and stay tuned next month for more of her expertise on cybersecurity.

Q: What exactly is management liability insurance?

Management liability insurance (MLI) encompasses the financial lines policies of Directors & Officers, Employment Practices, Fiduciary Liability and also may include other coverage lines such as Crime, Kidnap & Ransom, and Workplace Violence coverages. 

Most large providers package these lines together in a management liability program, but one can also purchase these individually.

Q: What type of businesses need management liability coverage, and why? 

All types of companies can apply for and purchase MLI: it is a transfer of risk from their balance sheet to an insurance product. 

Even small companies and nonprofits without a board can benefit from an MLI policy, since claims could potentially come from employees, third-parties (vendors, contractors), beneficiaries, donors and other regulatory agencies.

This is because – when an executive or board member is advising an organization and making decisions that affect the organization – they can be held personally liable for any alleged mismanagement, misstatement (financial), errors and omissions in their capacity as a director, officer or executive.  

MLI also provides coverage for the company itself, if it is named in a lawsuit; a valuable aspect of the policy includes the defense of these claims. Directors & Officers (D&O) claims are not frequent, but can be very costly in terms of legal fees. A good D&O policy will provide defense costs coverage for the insured, and sometimes provide additional defense cost coverage outside of their policy limit aggregate.

Q: Why is management liability insurance so important in today's world?

MLI has become very important due to the increased SEC regulations, increased pressures put on the fiduciary duties of directors and officers and increased number of employment-related practices lawsuits.  

Also, we have seen a large upswing in merger and acquisition activity, which brings additional exposure to organizations.

Caremark claims introduce the concept of the duty of oversight, which is a component of the board member’s duty of loyalty that they owe to the corporation and its shareholders.  And, there is an overall widening of the board’s oversight duty in both public and private companies.

Q: Can you discuss the cost implications (the business industry, business longevity, employee count, claims history) as factors that are considered when coverage is provided?

Management liability underwriting is traditionally reliant on industry class and size, and financial condition plays a huge role in underwriting. 

A business’ claims history will certainly cause the policy cost to increase, which is why choosing a good carrier partner is important for industry classes who see high volume of employee turnover, and employment practices suits.

With the right insurance policies and analysis of what types of coverage are needed in your unique situation, you can better protect yourself and your business against financial and data loss. Contact us today so we can help you find the best fit for your needs.