Four management liability insurance myths debunked

Irrespective of a company’s size, any director or officer can have an allegation of wrongdoing made against them in the course of their management duties which may need to be investigated or defended, even if the case doesn’t reach court. Not only can this prove costly, but if a company is unable or unwilling to assist, the director or officer in question may need to foot the costs themselves if management liability cover isn’t in place to protect them.

Smaller companies will often look to outsource HR and may wrongly believe that this will absolve them from liability for employment-related issues. An outsourced HR company will assist with establishing policies and creating an employee handbook, but because they don’t sit within the company and aren’t immersed in the culture, it’s unlikely they will recognise potential issues as they develop. By the time a problem arises, it may be too late to mitigate. Having an insurance policy that helps direct employers can save a significant amount in defense and potential settlement costs.

Unfortunately, some of the most contentious claims that insurers see are from family-run businesses, whether this is a husband and wife led company or a second/third generation business. We’ve seen acrimonious divorces spill into disagreements within companies, as well as multi-generational family businesses where family members are pulling in different directions. These types of organisations can see insured vs insured, wife vs husband or cousin vs cousin claims; they can be emotive and therefore protracted, which leads to significant defense costs.

Many individuals believe that because a company is private that their liability is limited. However, the limited liability only protects the shareholders to the extent of their investments. Directors, on the other hand, may still face personal exposure and potentially unlimited liability if claims are brought against them directly.