To help spark these conversations, we’ve put together a selection of questions you can ask, along with key talking points for each.
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Did you know that your personal assets may be at risk?
If a company is unable or unwilling to indemnify a director or officer—whether due to legal restrictions or financial constraints such as insolvency—then, in the absence of a management liability policy, the individual may be forced to cover the costs personally. In some cases, directors have had to sell personal assets, such as a house or a car, to meet the expenses of legal proceedings.
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Do you have protection against employment practices claims?
Small companies may not think that they are exposed to employment related issues, especially if they outsource their human resource (HR) function. However, while an outsourced HR company will assist with the creation of policies, no company should put faith in a third-party’s ability to settle a claim. If a disgruntled employee brings a claim, an insurance policy which includes employment practices liability can save you significant amounts of defence and settlement costs.
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Are you considering raising external funding?
As start-ups in the technology or life science sectors look to expand or invest in their business, they may consider raising external funding. Often, an investor - either individual or institutional - may wish to have a seat or representation on the board of directors. Therefore, it is not uncommon for a funding contract to specifically require management liability insurance to be purchased within a set timeframe to reduce the investor’s exposure to potential lawsuits.
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Are you looking to expand your board of directors?
If a company is looking to recruit a new director to bring new skills or experience to the board, any prospective candidate would be hesitant if their personal assets are potentially at risk. A management liability policy can provide peace of mind, allowing management to focus on their role and remove the potential barrier to hiring.
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Are you worried about the cost of management liability insurance?
Management liability for small to midmarket private companies is a standardise class and relatively inexpensive. In many cases, the annual premium is equivalent to the cost of just one hour with a specialist lawyer qualified to handle complex claims – so there is no excuse not to buy!
To find out more about CFC’s management liability insurance, contact Henry Angove, Team Leader
