Management Liability Coverage - Exposures Explained

Management liability insurance policies help protect your clients’ directors, officers, board members, managers, and administrators against mismanagement lawsuits. It helps reduce the risk of paying out costly settlements not covered under their commercial general liability policy.

As you know, businesses face ongoing risks of litigation related to mismanagement, whether lawsuits are filed by shareholders or employees. Your clients must protect themselves and their management teams with adequate liability coverage. Here we explain the exposures companies face without adequate management liability coverage and how an insurance wholesaler can help.

The Role of a Wholesaler in Management Liability Insurance

A wholesaler can place management liability policies as standalone policies or combine them with an existing liability package. As a wholesaler, Novatae places specialty coverage to help you meet unique client needs. With access to custom management liability insurance policies, you can expand to more markets and lean on Novatae for specialty expertise.

What's Covered Under Wholesale Management Liability Insurance

Your clients need management liability insurance to indemnify them for loss payments if they are found to have caused harm due to the “wrongful acts” of their officers, directors, and, in some cases, employees, such as:

• Errors & Omissions
• Misstatements or misleading statements
• Neglect or breach of duty

Although management liability insurance policies can’t anticipate every risk, a wholesaler offers the expertise required to substantially reduce the expenses of claims not covered under standard management liability policies. Some specific examples include:

Kidnap and Ransom Insurance

Kidnapping insurance provides hostage insurance against losses related to the surrender of property when harm is threatened to the insured, employees, or relatives/guests of your clients and their employees.

Commercial Crime Insurance

This covers the company for financial losses caused by business-related crimes, such as:

• Employee theft
• Electronic crime
• Employee dishonesty
• Forgery
• Computer fraud
• Illegal funds transfer
• Extortion
• Counterfeit money orders and money

Employment Practices Liability Insurance (EPLI)

EPLI is a named perils policy offered on a claims basis, protecting against financial loss related to employment practices, including:

• Sexual harassment
• Discrimination
• Wrongful termination
• Retaliation
• Failure to promote or deprivation of career opportunities
• Violation of an employee’s civil rights
• Emotional distress

Fiduciary Liability Insurance

This additional insurance protects against fiduciary mismanagement claims for benefits such as employee retirement or health plans.

Directors and OFFICER'S Liability Insurance

Commonly known as D&O liability insurance, these policies protect the personal assets of your clients’ corporate directors and officers and their spouses from personal lawsuits related to wrongful acts in company management.

You can expand your reach even further by offering management liability coverage for non-profits. This would handle claims related to wrongful termination, discrimination, and breaches of fiduciary duty, such as mismanagement of funds or conflicts of interest.

Determining the Need for a Wholesaler

The need for a wholesaler isn’t always apparent, but assessing your internal expertise is an excellent place to start:

• What level of experience do your in-house resources have with management liability?
• How much access does your network have to niche markets?

Remember, management liability can have niche complexities depending on the industry. You need to address specific risks related to each client and ensure they have the right coverage for those risks.

Calculating the Cost of Management Liability Insurance

The average annual cost of coverage depends on the company’s revenue. It also decreases if your clients purchase higher coverage limits. But how do you know how much is enough? You need to provide ample coverage based on the risks the company presents.

Underwriting Considerations

Factors that affect the risk level of a particular business can include:

• Length of time in business
• Financial background
• Company size
• Key policy terms
• Risk exposure
• Claims history

Understanding Risk Exposure

Risk exposure determines the amount of financial loss or potential impact that the business could face due to the various risks it is exposed to. A higher level of risk exposure can incur higher premiums. For example, exposures are high for manufacturing, financial institutions, and biotech companies, which have more inherent risks.

Key Considerations for Retail Agents

Offering complete management liability coverage protects your clients against risks not included in boilerplate insurance offerings. However, limited knowledge of management liability reduces your effectiveness as an expert in this specific line. 
Partnering with a wholesaler is the best way to provide the highest quality insurance for your clients. We consider market trends impacting risks for specific businesses and emerging exposures contributing to those increasing risks.
Novatae can customize management liability insurance packages to meet the unique needs of your clients.

Novatae can customize management liability insurance packages to meet the unique needs of your clients. For more information or to request a quote, click here.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.