Whilst the liability of your company is limited, your personal liability as director is not. Management Liability cover provides protection against the financial costs of a wrongful act and protects Directors' assets.
There are three key areas to a Management Liability policies:
1. Directors & Officers (D&O) Liability – this section of cover protects the personal wealth of Directors, Senior Officers and any other Management staff from the legal costs and awards in defending against civil, criminal and regulatory claims or investigations.
2. Corporate Liability (Entity Defence) – claims can be made against the Directors and Officers and also the business itself in tandem. This cover protects the legal entity (business) from defence costs incurred relating to civil, regulatory claim or investigation.
3. Employment Practice Liability– this covers both the Directors and the business from claims from potential, current and former employees alleging breach of contract/employment law.
There are common misconceptions when considering Management Liability (Directors & Officer (D&O) Liability) cover. Here are the Top 10 reasons to buy Management Liability insurance.
1. Directors’ personal assets are at risk
If a director has been accused of breaching their duties, they are personally liable to defend the claim. Their personal assets are potentially at risk if they do not have adequate D&O cover.
2. Investigations by regulators are getting more and more common
Investigations and fines imposed by a regulator or body such as the Health & Safety Executive are one of the primary drivers of claims in the current UK business climate.
3. Defending a legal action can be costly
Legal costs for defending allegations against the company or one of its directors can often run into tens of thousands of pounds.
4. Employment practice claims remain a large threat to directors
In an increasingly litigious society employment practice claims such as sexual harassment or wrongful dismissal can result in astounding settlements.
5. Your investors can sue you
If investors lose value in their shares a s a result of a director or company’s alleged misconduct they could seek compensation via the courts.
6. Protection in case of bankruptcy or insolvency
If faced with bankruptcy or insolvency, creditors may pursue legal action against directors if they feel that they have not acted in their best interests.
7. SMEs are just as vulnerable as large companies
SMEs are not exempt from D&O claims, they face exactly the same risks and regulations as their larger peers, but often do not benefit from in-house HR or legal teams.
8. D&O claims are not covered under any other liability policy
A common misconception is that alleged misconduct by directors or companies is covered under other liability policies such as Professional Indemnity.
9. D&O insurance is more affordable than ever
A D&O policy can cost from under £500 per year, yet the total cost of a D&O claim can run into hundreds of thousands, if not millions of pounds.
10. D&O helps attract talent
Not having D&O insurance in place may put off talented individuals from joining a company as they will not be protected.