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In their daily operations, businesses are continuously exposed to numerous risks, including those that aren't too obvious but which often result in adverse effects when they happen, such as employment conflicts. With more employees increasingly opting for legal redress against perceived professional negligence or violations, every business needs a solid risk management plan.
At a personal level, professionals such as managers, directors, and board members stand to lose high-profile careers and even personal assets when sued for unintentional errors that arise in the line of duty. But as an organization, disputes and legal claims can lead to financial losses and affect the business’s overall brand and image. And this is where management liability insurance can be beneficial.
What Is Management Liability Insurance?
Management liability insurance is a type of insurance that can protect you against the pitfalls associated with running a business. It can help safeguard your business against the potentially crippling effects of litigation against you or your business. This is particularly since present and past employees can sue you for various conflicts, including data breaches, health and safety claims, workplace injustice, and corporate negligence.
Essentially, management liability insurance offers financial protection against the demands placed on you following a successful legal suit against you. For instance, in a worst-case scenario, hefty legal costs and penalties awarded to claimants can cause significant setbacks leading to insolvency.
To explain management liability insurance better, we'll briefly break down four crucial points you need to know.
1. Every Business Needs Management Liability Insurance
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An insurance cover safeguards the commercial value of the asset it's procured for by protecting it against probable but unforeseen financial loss. For instance, motor insurance protects you from the financial loss you may encounter if your car is written off following an accident. Once the insurance company settles your claim, you can have another chance to acquire a car. The same wealth protection principle applies to management liability insurance.
There are various instances when your errors and omissions, or those by your managers, can expose the business to significant financial setbacks. For instance, a class action lawsuit filed by a group of former employees can result in unprecedented penalties against the company. In some instances, legal demands, including financial penalties, may also be placed on individual managers, causing them financial loss at a personal level.
Management liability insurance helps preserve your company's financial assets by settling the financial compensation awarded to employees who filed a legal case due to wrongdoing by you or your managers. Management liability insurance can also cover other settlements, including legal costs, ensuring you don't dig into your financial reserves or dispose of an asset to raise the money needed to settle management liability claims.
2. All Senior Employees Should Be Covered By Management Liability Insurance
To err is human implies that you and your management team remain fallible despite putting in place the best systems to guide your standard operating procedures. Therefore, it pays to err on the side of caution by having management liability insurance for your senior managers that are involved in any of the following roles:
- Managing employees that can be disgruntled. This applies to all managers in charge of people because people change. For instance, a policy shift affecting working hours and processes can make the team you've worked with seamlessly for a long time become discontented and turn against you.
- Those who are signatories in various employment or human resource documents and who can be sued together with the company.
- Those who control and oversee daily operations and are sometimes compelled to make unpopular decisions at the drop of a hat. For instance, there might be a need for abrupt staff role changes to forestall or minimize the devastating outcomes of a workplace crisis. It's possible for some employees to feel victimized or unfairly treated when such things happen.
- Your managers who are making employment decisions or recommendations, including hiring, firing, and wage increments. This group of employees can be sued for unfair employment practices such as wrongful dismissals and discrimination.
It's advisable to have management liability insurance for your entire managerial team- yourself included. Management liability insurance is a necessity that can protect senior management and professionals who stand to suffer financial loss occasioned by lawsuits filed by their team members.
3. Items Covered By Management Liability Insurance
Most allegations of wrongdoing filed by employees against your company, directors, managers, or officers are covered by management liability insurance. But for a more in-depth discussion, there are different types of management liability insurance coverages, including:
- Directors And Officers Cover: This comprehensive cover protects the personal assets of your company's directors and officers by offering indemnity for mistakes committed in their daily operations.
- Employment Practices Cover: This covers financial claims from lawsuits alleging harassment, discrimination, and even violation of personal rights. It also covers cases filed by employees who consider injustice as the cause for their separation from your company.
- Commercial Crime Cover: This protects the company from financial loss occasioned by the dishonest acts of a team member, such as employee fraud and theft.
- Kidnap And Ransom Cover: If you have employees working in high-risk areas, this cover protects your business from financial loss due to ransom demands for kidnapped employees or extortion threats.
4. Exclusions In Management Liability Insurance Covers
Becoming familiar with the extent of risk coverage in your management liability cover is highly recommended. However, like with all insurance coverage, there are apparent exemptions to your management liability insurance cover, such as intentional illegal acts, dishonest acts, and non-compliance with regulatory frameworks.
But as a good measure, it's always recommended to ask your insurance provider about any special exemptions that apply to your insurance coverage.
Final Words
Running a business comes with its fair share of financial risks. Some of these risks expose the business and senior employees involved in its daily operations. And this is how management liability insurance can be an asset. It can protect your company and its management from financial setbacks through a hybrid insurance solution that allows you to cover multiple risks under one umbrella.
Get in touch with a credible business insurance company for advice on how to package a management liability cover that addresses the unique nature of your business.