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

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