Did you know there are more than 1.2 million employer businesses in Canada in 2021? A business runs because of top-quality management.
Without good management, the business can run into financial and operational issues. But good management needs the freedom to run the business. They shouldn't be worried about liability concerns around every corner.
This is where management liability insurance comes in. This coverage provides protection of the company’s assets as well as the personal assets of corporate executives when the unexpected happens. Keep on reading for a full guide on management liability insurance and why it’s essential for your business.
Who Is Management Liability Insurance For?
Management liability insurance covers different corporate executives including directors, officers, and managers. The risk of third-party claims is not limited to large corporations. Management liability insurance covers privately held and public corporations.
Public companies are always in the eye of the media. Their brand is essential to their profits. Dealing with third-party claims and crime can end up driving their income down, which is not great for their shareholders. Management liability insurance can provide some protection in this case.
Private companies face all of the same risks and liabilities as public companies. They still have to deal with employee claims including human rights claims and criminal activities. They also have to worry about their financial status which can be impacted by frivolous legal claims.
Not-for-profit companies also must consider management liability insurance. Not-for-profit companies work on a stricter budget. Every dollar of revenue is important to them. Dealing with third-party claims can lead to financial problems. Without insurance, not-for-profit companies will not able to do important work for the community.
Financial institutions, credit unions, and investment asset managers also face increased risk. This is because they deal with people’s finances. This puts them at higher risk of having crimes perpetrated against them. Management liability insurance can provide protection for financial institutions.
The reality is that any company with employees faces the risk of employment claims. These can be for discrimination, harassment, assault, and unfair dismissal. All companies should consider management liability insurance.
What Does Management Liability Insurance Cover?
Management liability insurance provides protection from a wide range of unexpected events from negligence to misrepresentation. You need to understand more about what management liability insurance covers. By doing so, you can be more confident in your discussions with your insurance company.
In most cases, the corporation is a separate legal entity. The debts of the corporation do not impact the management. However, in certain situations, directors and offices are held personally liable for the debts of the corporation.
Following bankruptcy, a company may not be able to pay the wages of employees. Directors of a corporation will be personally liable for the unpaid wages of employees. They will also have to personally pay any unremitted source deductions and taxes to the Canada Revenue Agency.
Directors and officers are subject to a fiduciary duty to the corporation. A fiduciary duty is a legal standard of behaviour to act in good faith in the best interest of the corporation. A wide range of activities can fall offside this fiduciary duty.
There can be a situation where management misrepresents the financial status of the company to lenders. Especially if it's done before filing for bankruptcy, they can be held liable if the lenders choose to sue.
Management must meet additional obligations to employees or they could be held personally liable. Management liability insurance covers any activities that lead to a:
- Hostile work environment
- Wrongful termination
This includes defamation and bad-mouthing employees to third parties. It can also include a situation where the employer sends a memo to staff detailing a dismissal.
Not-for-profit companies can deal with the additional risk of claims for negligence and breach of trust. This is especially important where the donated funds were not used for charitable purposes. They also have to deal with the same risks of:
- Wrongful termination
- Negligent misrepresentation
Consider a situation where a not-for-profit company receives government funding. If the funds were not used as per the funding application, management can be sued for negligent misrepresentation.
Types of Management Liability Insurance
Management liability insurance covers a wide range of activities. There are specific insurance coverages you can choose from.
Directors and Officers Liability
Directors and officers have obligations and responsibilities above and beyond a regular employee. They also have a higher risk of getting personally sued for certain activities or events. Management liability insurance can cover directors and officers from third-party claims for mismanagement or improper conduct.
Directors and officers have a:
- Duty of diligence
- Duty of loyalty
- Duty of obedience
Essentially, they are legally required to act in the best interest of the company. Where there are claims that the director or office did not act appropriately, they can deal with legal fees and settlements. Management liability insurance can cover those financial costs. In this way, the company's bottom line is not impacted.
Employment Practices Liability
Small businesses employ 68.8% of the total private labour force. Medium-sized companies employ 2.4 million employees and large companies employ 1.4 million employees. Employees have to be treated fairly and equitably.
Management can deal with employee claims for unfair employment practices. This includes situations where employees are wrongfully terminated or dealt with discrimination. These can include:
- Breach of contract
- Constructive dismissal
- Wrongful dismissal or wrongful demotion
- Inflection of emotional distress
- Invasion of privacy
Management liability insurance covers the losses resulting from any of these disputes. While the company may be in the right, they still have to deal with the legal costs. This insurance coverage protects the company’s bottom line.
As noted above, management has to adhere to certain fiduciary duties. Where these fiduciary duties are not met, they have to deal with litigation. Third parties or employees can sue management for any financial losses that they incur.
Directors and officers also have the added obligation of managing employee benefits and pension plans. Employees rely on their pensions to plan their future and retirement. Any allegation of mismanagement can lead to long and expensive legal battles.
Management liability insurance can cover losses resulting from mismanagement of employee benefits and pension plans.
Every company has to deal with internal crimes including theft, fraud, embezzlement and forgery. This can lead to unexpected financial losses that can impact the bottom line of the company’s financials.
Theft and fraud can take many different forms. A financial institution or a company that deals with securities can deal with the disappearance of money from the premises. They can also deal with forgeries or counterfeit currency.
Management liability insurance can help cover any losses from employee or third party crimes.
What Is Not Covered by Management Liability Insurance?
You now know what management liability insurance covers. While this is an important element of your insurance coverage, you should know that it doesn’t cover all activities of a business. There are separate policies that you would need to get to be fully protected from the risks of running a business.
General Commercial Liability
Management liability insurance does not cover general commercial liability. This coverage is for property damage and bodily injury for third parties. This can include anyone on the premises including clients, delivery persons and any unexpected guests. This is generally known as “slip and fall” insurance.
This particular insurance is designed to cover financial losses from third-party claims. This can include a client slipping in your parking lot on water or ice. It can also provide protection for the neighbouring properties that surround you in the event of damage that extends beyond your business. You’ll need separate coverage for general commercial liability.
Management liability insurance also does not protect your equipment if it breaks down.
This is where equipment breakdown insurance can help protect you from unexpected events. It can cover you for equipment breaking down if there’s a fire or a malfunction. In such cases, you can get the equipment repaired or replaced.
If you’re also working from home and running your business, then there are specific risks that you have to deal with. These would not be covered under management liability insurance. Home-based insurance is specifically designed for home businesses.
Home-based insurance can include coverage for business interruption. It will help you recover lost income if you need to stop your business to deal with fires, other property damage or theft.
Workers Compensation Insurance
Management liability insurance covers you for employee claims for wrongful termination. It does not cover you if your employees get injured while working. You will need separate workers' compensation insurance. This is a separate policy that you should discuss with your insurance company.
Management liability insurance covers you for employee crimes like fraud and embezzlement. In this digital age, you are also at risk from cybercrime.
Criminals can hack into your systems and hold your data for ransom until you pay the full amounts. Cybersecurity insurance can also protect your company if your customers pay online. It will protect your data if you save their credit card details on your website.
What to Look for in a Company that Offers Management Liability Insurance
The first thing you need to look for in a company that offers management liability insurance is excellent customer service. You want your insurance company to have agents available 24/7 because unexpected events can happen anytime. You want to have agents come and review immediately, so you can start putting your contingency plan in place.
You also want your insurance company to have experience in management liability insurance. Your insurance company should understand the risks and nuances of management liability insurance.
They should get to know you and your business. They also need to understand:
- The type of claims you deal with on a regular basis
- The number of employees you have
- The security measures you have in place
If your insurance company has this experience, they can provide you with the best premiums. You want a company that can offer affordable premiums that are steady over the years, especially if you haven’t had any claims in the past.
Typical Costs of Management Liability Insurance
There is no single standard policy for management liability insurance. That’s why there’s no single cost that you can budget for. Each company has its own set of risks and obligations.
The cost of management liability insurance depends on the number of employees you have. The more employees you have, the higher the risk of wrongful dismissal charges and criminal activities.
It also depends on what security measures you have in place, including human resources policies to ensure that employees are protected. Your past experiences with employees will also play a role in determining your premiums.
The size of your business will also impact the cost of management liability insurance. The bigger the business, the higher the premiums because you will end up getting sued for higher amounts.
Your employee hierarchy can also impact your cost. For example, if you have a greater number of employees at the management level.
How to Save Money on Management Liability Insurance
The best way to save money is to shop around. Contact different insurance companies and see what premiums they offer. Since management liability insurance is customized to your needs, different companies offer different premiums.
Also, remember that bundling several coverages and policies together with the same insurer can lead to discounted rates.
Management insurance liability is an essential level of protection that most businesses should consider. The risks are not limited to small or large corporations.
As a manager, director or officer, you make decisions for the business all the time. This comes with a significant level of risk for third-party claims. For certain negligence of fiduciary duties and employment practices, your personal assets may also be on the line.
Are you ready to explore the finer details of Management Liability Insurance? Speak to our partners at APOLLO Insurance. Their highly experienced agents are available to answer all of your questions about business insurance. Connect with them here.