News & Media

Management Liability Insurance: Time to Act?

Sarah Brailey & Jacqueline McNamee
14th January 2020

Management Liability Insurance: Time to Act?

With the recent controversies surrounding Nissan’s CEO Carlos Ghosn and Thomas Cook’s spectacular fall from grace under the leadership of Peter Fankhauser, the spotlight has been turned on insurance and specifically the topic of management liability insurance. In this article, Sarah Brailey Divisional Director at THB, one of the largest speciality brokers in the London Market and Jacqueline McNamee CEO at C-Quence, an award-winning InsurTech MGA, look at the recent trends in management liability insurance and what brokers can offer clients in this burgeoning sector in the corporate insurance market.

Actions and Accountability

Management liability insurance (“ML”), sometimes known as Directors’ and Officers’ liability insurance (“D&O”) is a type of cover that offers protection to directors, officers, partners and employees of a company. “The burden of corporate leadership often brings with it a raft of responsibilities – to the workforce, the shareholders, the general public, customers, stakeholders and industry regulators. ML is designed to cover the cost of claims for compensation made against the individual (and the company itself in many cases) should their personal actions or decisions lead to a demand for redress which, in turn, could lead to possible fines, compensation or imprisonment. Most importantly, ML covers legal defence costs as well as regulatory investigation costs,” said Jacqueline McNamee.

“It’s a complex area encompassing employment regulations, negligence and breach of trust, environmental and health and safety and financial mismanagement. Add to that the fast-paced evolution of cybersecurity, social media and reputational management and intense media scrutiny, it’s no wonder that the insurance sector is witnessing an unprecedented growth in ML insurance,” added Sarah Brailey.

ML insurance was traditionally popular among publicly traded companies, especially in the US. Today the UK is seeing a spike in interest. The private company sector is now much more sophisticated with greater competition between companies and with their activities constantly under scrutiny. Plus, the greater connectivity through globalisation and internet technologies means that no organisation is beholden to just a small coterie of shareholders any longer.

“At THB the main areas of growth we’re seeing are in employment practices liability, pension trustee liability, corporate crime and cyber breach response. Generic cover includes claims brought against your company, civil claims, criminal prosecutions, arbitration and mediation, investigations and administrative or regulatory proceedings. It also includes legal defence costs, awards of damages, settlements and representation costs,” remarked Sarah Brailey.

Employee Relations and Other Increasing Exposures

The awareness of employee rights also continues to exponentially increase across the breadth of all industries and is no longer isolated to larger organisations. New contractual employment agreements brought about by the gig economy now means that claims by employees could include volunteers, secondees and contractors under the direction and supervision of the company or organisation.

Jacqueline McNamee stated: ”They are no longer primarily isolated to wrongful termination but can include harassment, all kinds of discrimination, bullying, equal pay for equal work, failure to promote, a hostile work environment, and breach of contract which are just a few examples that can be included under includes civil, regulatory, administrative and dispute resolution proceedings, arbitration or mediation and formal investigations against individuals or the company.

In a world of endless social media and 24-hour news cycles, awareness of issues like the Me-Too harassment allegations and the gender pay gap quickly become more prevalent and systemic. In most cases, they are also a company’s responsibility. So it is imperative that controls are implemented to protect the leadership team or Board, management, employees and the entity itself.

With 24-hour social media wrongful internet activity whereby acts committed by means of social media or other internet activity regardless of whether it occurred at work or not can give rise to claims.

Other areas of exposure include the recurrent and ever more sophisticated cyber-attacks on company held data and funds and highly onerous pension laws protecting employee benefits and rights”.

Added Sarah Brailey: “At THB we’d advise brokers to conduct as much research on current trends affecting D&O and ML and to converse with clients about the importance of mitigating against these risks.

We have also aligned ourselves with C-Quence, a UK based award-winning InsurTech MGA which provides a modern, sophisticated product that allows brokers and their clients to choose covers appropriate to the risks they face.”

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