Management Liability compromises of 3 sections of cover: Directors & Officers (D&O), Employment Practices Liability (EPL)
and Corporate Legal Liability (CLL) insurance.
Section 1: Directors & Officer Liability (D&O) or Trustees Liability (TL)
What is Directors & Officers (D&O) Insurance?
Directors and Officers insurance, also referred to as D&O insurance, is the main cover under a management liability insurance policy. This type of liability insurance protects a company's directors and officers from legal action which could be brought against them when performing their duties and responsibilities.
Who does it cover?
A D&O insurance policy typically covers the personal assets of Directors and Officers in the event they are sued individually when performing actions on behalf of their company and / or it’s subsidiaries. As well defending the Directors, D&O policies can also reimburse the company itself for any legal costs and expenses incurred in defending its directors for alleged wrongful acts.
This type of insurance is intended to protect individuals who serve on the company's board of directors or other governing bodies, as well as executive officers and other high-level managers. In general, a D&O policy will cover any individual who is named as a director or officer in the policy, as well as any individual who subsequently becomes a director or officer during the policy period, resigns or retires. If requested, D&O policies can also extend to include cover for outside directorship liability when a director acts for an associated company such as a non-profit organisation or when the company has a shareholding in another company which is not a subsidiary.
D&O insurance can cover Directors and Officers against a wide range of potential liabilities arising from the actions and / or decisions they take in the course of their duties. This could typically cover legal costs and damages resulting from allegations of wrongful acts, such as breach of duty, negligence, or other misconduct.
Some common types of claims that D&O insurance may cover are as follows:
Mismanagement of the company's funds or assets
Breach of fiduciary duty
Employment practices liability
Discrimination or harassment claims
Securities law violations
Shareholder derivative suits
Criminal prosecutions
What are the different types of cover available?
In D&O insurance, "Side A," "Side B," and "Side C" refer to the different types of coverage provided by a D&O insurance policy.
Side A coverage provides protection for individual directors and officers when they are not indemnified by the company. This type of coverage can help cover the costs of defending against lawsuits and other legal actions brought against directors and officers personally and can help protect their personal assets.
Side B coverage provides protection for the company when it reimburses its directors and officers. This type of coverage can help cover the costs of defending against lawsuits and other legal actions brought against directors and officers in their capacity as representatives of the company and can help protect the company's assets.
Side C coverage provides protection for the company itself, regardless of whether it indemnifies its directors and officers. This type of coverage can help cover the costs of defending against lawsuits and other legal actions brought against the company and can help protect the company's assets. In general, D&O insurance policies provide a combination of Side A, Side B, and Side C coverage, to provide comprehensive protection for directors, officers, and the company itself.
Does my business need Side A and Side B cover?
Side B coverage can provide protection for the company if it is named in a lawsuit along with its directors and officers and can help cover the costs of defending against such claims. This side is an important component of D&O insurance because it can help ensure that the company has the resources it needs to defend itself against legal action and can help protect the company's assets and reputation. It is commonly included as part of a comprehensive D&O insurance policy, along with coverage for individual directors and officers.
Whether or not you need Side B cover in your D&O insurance policy depends on your specific situation. It can provide important protection if your company is named in a lawsuit along with its directors and officers. This type of coverage can help ensure that the company has the resources it needs to defend itself against legal action and can help protect the company's assets and reputation. Additionally, if you are a director or officer of the company, Side B cover can provide additional protection for you personally, because it can help cover the costs of defending against claims that are brought against both you and the company.
I have a Professional Indemnity policy; do I need D&O as well?
D&O insurance and professional indemnity insurance are two different types of coverage. D&O is a type of liability insurance that protects the individual directors and officers of a company from claims arising from their actions or decisions in the course of their duties. Professional indemnity insurance, on the other hand, is a type of liability insurance that protects professionals against claims arising from mistakes or errors they may make in the course of their work. This type of insurance can cover legal costs and damages resulting from allegations of professional negligence.
My company is Ltd so do I need a D&O policy for my business?
Whether or not you need D&O insurance depends on your specific situation. If you are a director or officer of a company, and you are concerned about the potential for personal liability arising from your actions or decisions in that role, D&O insurance can provide valuable protection. This type of insurance can help protect your personal assets if you are named in a lawsuit or other legal action and can cover the costs of defending against such claims.
What is not usually covered?
Like any other insurance policy, a D&O insurance policy will have limitations and exclusions on the types of losses and liabilities it covers so it is very important to carefully check the policy wording which contains the insurers full policy terms, conditions & exclusions. Some common exclusions in D&O insurance policies include:
Losses arising from intentional or criminal acts
Losses arising from the company's financial statements or financial performance
Losses arising from certain types of securities transactions
Losses arising from bodily injury or property damage
Losses arising from certain types of employment practices
Losses arising from certain types of environmental liabilities
How much cover do I need?
The amount of D&O insurance coverage you should get depends on your specific situation and needs. When determining how much coverage to purchase, you should consider factors such as the size and type of your company, the industry you operate in, and the potential risks and liabilities that you and your directors and officers may face. It's important to consider both the potential financial costs of a lawsuit or other legal action, as well as the potential impact on your company's reputation and operations. When deciding on the limit of indemnity, it is also worth noting that the basis of indemnity in D&O insurance is often in the Aggregate which is the total amount of indemnity you would have available for all claims made in one policy year. For example, if you opted for a £500,000 Aggregate limit this is the total amount of indemnity available to cover all claims made in one period of insurance. In general, it's best to err on the side of purchasing more coverage than you think you need, to ensure that you have adequate protection in the event a series of claims could be brought against you.
How much does a policy typically cost?
The cost of D&O insurance varies depending on several factors, including the size and type of your company, the industry you operate in, claims history and the amount of coverage you need. In general, D&O insurance tends to be more expensive for larger companies and for companies operating in high-risk industries where they may have more complex shareholding and / or funding structures. If your business is a new start up and very reliant on outside investment, then insurers may also want to see a comprehensive business plan with 3-year financial forecasts. The cost of D&O insurance can also vary between insurers, and the final premium will of course depend on the specific terms and coverage options included in the policy and what level of covers & benefits you choose.
Section 2: Corporate Legal Liability (CLL)
Often referred to as Entity Defence cover, Corporate Legal Liability is similar to D&O cover but provides protection for the company itself as opposed to individuals. This insurance can reimburse firms for any legal costs should an allegation be made against the company. For example, this could include but is not limited to:
Alleged breach of contract
Corporate manslaughter
Identity fraud
Pollution
Tax investigations
H&S investigations
Section 3: Employment Practice Liability (EPL):
Employment Practices Liability can be brought as an extension of D&O Insurance and will protect a company against employment claims. This could be settlements, costs, and damages for a wide array of employment violations such as:
Unfair dismissal
Sexual harassment
Discrimination
Breach of employment contract
Negligent evaluation
Failure to employ or promote
Wrongful discipline
Deprivation of career opportunity
Wrongful infliction of emotional distress
Mismanagement of employee benefit plans
Does management liability insurance provide me with any additional value-added benefits and support services? The levels of benefits you get access to will depend on the level of cover of you choose and the insurer you have. By way of example, you may get access to the following tools and support services:
Free telephone legal advice
HR library providing a wealth of H&S templates and guides
Credit checking tools
Management Liability policies and terms can vary so if you are considering taking out management liability insurance for the first time or reviewing your current policy it is worth taking the time to carefully review the full policy terms, conditions, and exclusions of the policy to ensure you arrange cover which is best suited to your individual business needs and budget.
If you would like to talk to us about Management Liability insurance and find out how we can help, please do not hesitate to get in touch with a member of our friendly team on
(+44) 0117 325 0560 or hello@simcoxbrokers.co.uk.
Sarah Davies
Head of Renewals at Simcox Brokers