Summary: Owning and managing a small business or nonprofit organization comes with many potential risks such as shareholder litigation, alleged employee discrimination, harassment or mismanagement of a company’s benefits program. Organizations can protect themselves by investing in management liability insurance to cover their teams and businesses against these types of claims. Find out more about management liability coverage in this article.

Management Liability Coverage

Management Liability Insurance covers exposures faced by directors, officers, managers and business entities. It includes Directors and Officers (D&O) liability insurance, Employment Practices Liability (EPL) insurance, Fiduciary Liability insurance and Crime Insurance. These coverages can be written as a stand-alone policy or combined in a package. Management Liability package coverage is usually available for private companies and nonprofit organizations. Publicly traded companies opt for stand-alone policies.

Types of Management Liability Coverages

Management liability insurance is a package of insurance policies designed to protect a business and its directors, officers, board members, managers and administrators from lawsuits alleging mismanagement. This type of coverage protects against risks that are not covered under a commercial general liability policy. Coverages include the following:

Directors & Officers Liability Insurance (D&O)

Directors and officers (D&O) liability insurance protects directors and officers if they are personally sued when managing a company or nonprofit organization. The insurance covers costs and settlements arising from wrongful action allegations and lawsuits brought against members of the board of directors, executives or an officer of an organization. A director or officer can be part of a lawsuit for a company even if they no longer are part of the executive team or no longer work for the organization.

Employment Practices Liability Insurance (EPLI)

Employment practices liability insurance (EPLI) helps safeguard an organization from employee, applicant or third party lawsuits alleging an employment practices violation. EPLI policies protect the company and employees, including past, present, part-time, seasonal, temporary, volunteers and applicants for employment. Beyond damaging a company’s reputation, an employment claim can lead to lower morale, diminished productivity, lost trust and large legal expenses.

EPLI covers the following employment allegations:

• Sexual harassment
• Discrimination
• Wrongful termination
• Retaliation by an employer
• Failure to employ/hire/promote
• Deprivation of a career opportunity
• Violation of an employee’s civil rights
• Infliction of emotional distress

Fiduciary Liability Insurance

Fiduciary Liability Insurance protects a business against claims of mismanagement of a company’s benefit plan, including retirement plans, 401Ks, medical benefits, dental, life and disability. The Employee Retirement Income Security Act (ERISA) states that fiduciaries are expected to act in the best interest of the plan participants and can be held liable for mismanagement of the plans. Fiduciary Liability Insurance covers losses due to an individual’s negligent administration of benefit plans.

Commercial Crime Insurance

Commercial Crime Insurance covers loss from dishonest employees and third-party theft of money, security and other property. There are different types of crime coverage, including:

• Employee dishonesty
• Forgery
• Computer fraud
• Funds transfer
• Kidnap, ransom or extortion
• Money and security
• Money orders and counterfeit money

Management Liability for Nonprofits

Nonprofit organizations should have nonprofit management liability coverage for their directors and board members. Nonprofit board members may be less familiar with running an organization than officers in for-profit businesses, potentially opening them to certain liabilities.

Allegations against nonprofit organizations can come from nonprofit clients, employees, and third parties, including government agencies or funding organizations. These allegations can be costly and can impact the nonprofit by loss of funding and a damaged reputation. Common claims against nonprofit leadership include:

• Mismanagement of funds
• Conflicts of interest
• Breach of fiduciary duty
• Wrongful termination
• Discrimination

Nonprofit D&O insurance covers the organization and any past, present, and future directors, officers, committee members, trustees, employees and volunteers. The heirs, executors, administrators and legal representatives of an insured would also be covered in the event of an insured’s death, insolvency or bankruptcy. EPLI coverage for nonprofits insures organizations against suits alleging harassment, discrimination, wrongful termination and other employment-related matters.

Management Liability Insurance From AmTrust EXEC

AmTrust EXEC understands the unique risks facing executive teams at privately- or publicly-held companies. Our Management Liability coverage offers a full suite of products for medium- and large-sized businesses. We provide creative management liability solutions for their clients, with our experts in underwriting and operations working directly with company decision-makers. Contact us for more management liability information.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.