Directors' & Officers' Liability pen on paper



A management liability policy is a comprehensive form of insurance that exists to cover allegations of wrongdoing, directed at the company as a whole or its managers, directors and officers. It can offer financial security for both businesses and individuals, typically paying out for the costs of a wide variety of claims

In what’s becoming a more and more litigious society, claims of wrongdoing are on the rise, and customers, shareholders, investors, and even other employees seek to hold people accountable for mistakes and problems. Legal proceedings can set companies back by hundreds of thousands of pounds, or even millions, and if a senior member of staff finds themselves the target of a claim, they could have to fund the legal proceedings out of their own pocket. Firms and directors can opt for protection against these risks by considering management liability insurance.

What Is Management Liability Insurance?

A management liability insurance policy provides comprehensive protection against claims alleging a wrongful act. These allegations can be directed at a company (as a whole) or at the company’s directors and officers, and is designed to cover both the claim itself, and the costs of defending the claim.

The terms ‘D&O’ and ‘MLI’ are often used interchangeably, but they are certainly not the same thing. Whereas a D&O policy covers directors and officers personally, a management liability insurance policy comprises directors’ and officers’ liability insurance (D&O), corporate legal liability and employment practices liability.

Management Liability Insurance in detail

Let’s look at the three main elements of cover in a Management Liability insurance policy

1. Directors’ and Officers’ liability cover

Directors or senior staff with significant responsibility within a company can find themselves in the spotlight should one or any of their decisions have a negative consequence. Should an individual either knowingly or unknowingly commit a wrongful act, they could be investigated, sued or prosecuted. Theses wrongful acts could include

  • breach of duty, legislation or trust
  • defamation
  • error
  • insolvency
  • misleading statements
  • negligence
  • wrongful trading

A claim against a director personally could arise from almost anyone, but the most commonly occurring claimants include

Creditors – if a company seeking funding before going into liquidation, the lender could make a claim against their financial loss if they received misleading information regarding the funding request.

Competitors – should you make an inaccurate statement, defamation is a common claim from competitors.

HMRC – should they suspect tax reporting or payment inaccuracies. HSE- should they suspect negligence from management which could pose a threat to public safety or to an employee.

Investors or shareholders: – they could blame a director should they suffer a loss based on withholding information or misguidance.

Other employees: – claims based on health and safety should they have suffered an injury due to lack of training from the management.

Criminal Investigators: – if fraud is suspected. And finally,

Regulators: – if a director has made an error in the administration of a benefit or a pension scheme, the financial regulators may investigate.

Where a business indemnifies its directors against claims arising against them in connection with their duties as a director of that organisation, then the D&O element of the policy will reimburse the Policyholder for the amount of the claim, subject to the overall limit of liability on the policy, and the excess payable. This is referred to as Company Reimbursement, or ‘B Side’ cover.

2. Corporate Legal Liability

Whereas a D&O policy is designed to cover claims made against an individual personally, Corporate Legal Liability insurance will cover claims made against the company itself. Should a company or one of its employees commit an unlawful act, corporate liability refers to a company’s legal responsibility for criminal acts.

Claims against a business come in all forms and from many different sources – business partners, competitors, customers, investors, shareholders and suppliers – but they can also arise from a failure to act; a failure to take the necessary steps to comply with the law. Examples could include

  • copyright infringement (copyright laws)
  • pollution (breach of an environment law) or,
  • a workplace accident (breach of health and safety laws)

The company could face prosecution if any of the above circumstances apply, and the outcome may result in a costly lawsuit and the absorption of other financial losses. Should this result in a prosecution and a court appearance, the benefit of a corporate liability insurance policy is that it can cover the associated costs such as

  • investigation fees
  • legal and court fees
  • the company’s legal defence and
  • settlement fees (should they arise)

3. Employment Practice Liability

The third element of a management liability insurance policy is Employment Practices Liability (EPL) insurance. This protects companies and their key senior staff against employment-related legal actions that are typically brought by a former or current employee alleging a breach of employment rights, such as

  • a breach of an employment contract
  • deprivation of a career opportunity
  • discrimination
  • emotional stress (work related)
  • harassment
  • pay inequality or
  • unfair dismissal. 

The cover may also include

  • legal defence and representation
  • legal fees and court fees,
  • investigation costs, and
  • settlement or compensation awards

Commercial Crime Insurance

Commercial crime insurance, also referred to as Fidelity Insurance, covers loss arriving from employee dishonesty and third-party theft of money, security and other property. Examples of crime coverage include

  • Computer fraud
  • Employee dishonesty
  • Forgery and fraudulent funds transfer
  • Kidnap, ransom and extortion
  • Money (money orders and counterfeit money)

Management Liability for Non-profit Organisations

Charities, clubs and associations, and other non-profit organisations should consider management liability coverage for their trustees and directors, who may be less familiar with the potential liabilities that can arise, than their counterparts in a genuinely commercial enterprise.

Allegations against non-profit organisations can arise from clients, employees and third parties, and may include government departments or funding organisations. Not only can such allegations be costly and result in a loss of funding, but they can also damage the reputation of the organisation. Claims against the senior members may include

  • conflicts of interest
  • discrimination
  • mismanagement of funds, and
  • wrongful dismissal

Typical Exclusions to a Management Liability Insurance Policy

Companies, directors and officers do not have protection for any illegal acts they committed deliberately. Other instances which typically do not have cover under management liability insurance include

  • claims covered by other insurance policies
  • claims made under a previous policy
  • directors or officers who have committed intentional non-compliance
  • claims made before the policy begins
  • property damage
  • bodily harm
  • fines and penalties

A successful lawsuit against a company or its management team means court fees, defence costs and potentially a buckling pay out. Fortunately, management liability insurance can protect both businesses and their managers from bankruptcy caused by professional mistakes.

The Difference Between Management Liability Insurance And Directors’ And Officers’ Liability Insurance

In the UK, many insurers use the terms management liability and directors’ and officers’ liability (D&O liability) interchangeably. In reality, D&O liability comprises of just one of three major parts to a typical management liability policy. Directors’ and officers’ liability, aims to protect the personal assets of those in management and supervisory roles, typically providing financial cover should they be sued for actions taken in their capacity as a director or officer.

D&O liability can also protect companies, but only in one specific instance. When directors and officers are found personally liable for wrongdoing, it is up to them to cover all associated costs, such as legal proceedings, compensation pay outs and so forth. Occasionally, however, companies choose to protect their managers and pay for these costs on their behalf. In these cases, D&O liability can offer reimbursement to companies that have elected to bear the brunt of a personal liability claim against one of its own.

D&O cover is just one element of a management liability policy. Management liability insurance is also designed to protect the company against its liability as an entity. If somebody brings a claim against a business and the company is found liable, a management liability insurance can pay out for the costs.

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