Category Archives: Management Liability

Do Private Companies Need Management Liability ?

lawsuit formAs an avid reader of the daily newspaper, not a day goes by that we don’t read about a suit being lodged against a public company, its directors and officers for some sort of malfeasance. While it is true that public companies are traded on national security exchanges and therefore they are in the spotlight and make easy targets. Thus, it stands to reason that they are seen as being worthy targets due to the assumption that they have “deep pockets” and can pay out inexhaustible sums of money when someone sues them.

The fact is that smaller, privately held companies often are at risk for the very same allegations as the ‘big boys’ and they don’t have the time, the resources or the finances needed to fight off such actions. A big corporation may have house counsel or lawyers kept on retainer specifically to defend such suits, but smaller companies can be wiped out by defense costs, alone, whether or not they win or lose!

A company, also known as an ‘entity,’ it’s directors, officers, shareholders, and employees, independent contractors, and in the case of some even its volunteers, are all at risk.
The fact is that a General Liability policy will not do the job if your company is the recipient of any of the following legal actions:

• Competitors alleging restraint of trade;
• Employees alleging misconduct;
• CEO’s accused of discrediting a competitor;
• Theft of trade secrets;
• Suits brought on behalf of shareholders;
• Allegations of misallocation of funds;
• Harassment;
• Discrimination;
• Negligent hiring;
• Deceptive business practices;
• Employment practices;
• Regulatory claims;
• Fiduciary claims;
• Negligent supervision

This list is just representative of the types of actions that can result and the average cost of defending such claims can run into hundreds of thousands of dollars even when adjudicated through arbitration.

More and more private companies are asking more and more questions about how to protect themselves especially in recent years since the economic downturn of 2008. Be sure to empower yourself and always ask questions regarding the risk to you, your company and the members of your organization. Asking questions doesn’t obligate you to purchase insurance. It just makes you better informed and able to weigh whether or not this protection is right for you! We strongly suggest that you begin to ask questions without delay.

By Karen Skoler, CPCU

Does My Business Need Management Liability?

GenLiability_dt_21134708Whether you are a public company or a private corporation, management liability is an important policy to have in place as part of your overall insurance program.

So, what constitutes management liability?
This is a policy which protects an entity, “the company”, its directors and its officers, its shareholders, if publicly held, and its assets from a variety of claims. The company is protected against claims alleging mismanagement and the directors and officers are protected against claims resulting from decisions they make. More importantly, the assets of the company as well as the board members, personally, are protected in cases of civil suits brought about by potential litigants.

Another component of Management Liability is Fiduciary liability which protects against claims alleging mismanagement of employee benefit plans.

Other inclusions which are often found in management policies include employment practices liability. This covers suits brought about by employees, independent contractors and/or third parties alleging wrongful acts, such as discrimination, mental anguish, harassment, and an assortment of workplace difficulties which can, in some cases, even include “bullying.”

Most important, however, is the defense provided by such policies, since we all know that even if allegations are proven to be false or fraudulent, the cost of defense can impact heavily upon a company’s bottom line. Some carriers include defense costs within the limits of liability and some provide for defense costs outside the limit. Given the choice, you would probably want to opt for the latter.

Deductibles can range from $5,000 to $50,000 and the higher the deductible, the less costly the policy.

If you have any doubt about the necessity of having such coverage in place, just take a look at some of the claims resulting from lay-offs, unlawful termination, sexual harassment, whistle-blowing, etc.

When asked to join a Board of Directors, the first question you should ask is what type of insurance does the company have in place to protect your interests? You are sure to be glad you did should a claim be brought during your tenure on the board.

– Karen Skoler, CPCU