Management Liability Insurance

Although each management liability policy will be slightly different, most will have two primary insuring clauses, Side A and Side B, with an option for a third, Side C.

Side A: Individual Cover provides personal protection for your directors and officers in their capacity where no other indemnification exists. A director’s personal liability is unlimited, so their own assets are at risk if cover is not in place.

Side B: Company Reimbursement provides balance sheet protection for your company where you provide or are legally required to indemnify your directors or officers. In the UK, a company often provides or is legally required to indemnify directors and officers.

Side C offers the following additional protection:

• Corporate Legal Liability (CLL). This provides cover for claims made against your company rather than individual employees. However, this is not a replacement for other types of cover such as professional indemnity, employers liability or cyber liability, as the CLL section will contain restrictions in these areas.
• Employment Practice Liability (EPL). This offers financial protection against awards of damages and defence costs arising from claims made by employees, including wrongful dismissal, harassment or allegations of discrimination.
• Pension Trustee Liability (PTL). This provides cover where a claim arises from a wrongful act committed or allegedly committed in relation to a pension scheme.
• Entity cover for securities claims (for listed companies). Usually written as an extension to a D&O policy, this protects the corporation from claims arising from the purchase or sale or the offer to purchase or sell the corporation's securities.
• Crime/Fidelity. This provides limited cover for theft of your company’s funds by an employee or through social engineering. However, this does not provide the same breadth of cover as a dedicated commercial crime policy. 

Management Liability or D&O Insurance works on a claims-made basis. If a claim arises, or you become aware of a circumstance that might reasonably lead to a claim, it must be reported under the policy in force at the time you first become aware of the matter and not the policy in force at the time an alleged wrongful act took place (if the wrongful act took place years previously). For this reason, you must renew management liability insurance annually to ensure that cover remains in force for current and past actions.

Management liability insurance claims can arise from a variety of sources, including but not limited to:

• The company or other directors - The company or other directors can accuse you, a fellow director, of a wrongful act and bring action against you.
• The sale of the company or its shares - Should a company be sold or sell a percentage of its shareholding, the purchasers could subsequently bring a claim against you and any other directors if they allege the directors misled or misrepresented the worth of the company and overstated its value.
• Regulators - There are over 90 regulators in the UK, both statutory and professional. For companies that fall within their remit, any have the potential to launch an investigation into a company and/or its directors, alleging a wrongful act has taken place.
• Shareholders - If they are different to the directors, shareholders can also bring claims against you as a director or officer in connection with any of the above examples if they feel you have not acted in the best interests of the company or been negligent, resulting in a financial loss to shareholders.