Property Casualty

Management Liability Coverage — A Myth?

Sean Mayer
Sean Mayer
Property Casualty

Chances are good that your company isn’t protected for management liability lawsuits and claims. Unless you’re purchasing Management Liability Insurance (often referred to as Directors & Officers), there’s a glaring gap in the protection you have compared to the protection you think you have. The main reason for this is that it’s a misunderstood coverage surrounded by myths. So…let me clarify it for you a bit.

Management Liability is a broad insurance coverage that protects people and companies when they’re sued for management-related decisions and actions that lead to a lawsuit. The lawsuit can come from a lot of different directions. It can come from within the company (for example: another owner or shareholder) or it can come from outside the company (for example: a competitor).

Within the agricultural industry, there are often unique ownership and management arrangements established, which create an open exposure that can be very complex. Quite often we’ll uncover ownership complexities that actually heighten the company’s level of risk, which wasn’t anybody’s intent. However, buttoning up these loose ends to shelter yourself from unnecessary lawsuits is critical.

Management Liability Insurance continues to evolve and is in high demand, especially with small- to medium-sized companies. The main reason is because of a long-standing myth that says only publicly traded companies or companies with a formal board of directors need to have the coverage in place. However, lawsuits all around the country have proven that to be a big mistake. The number of lawsuits filed annually against management and officers of the company continue to increase as well as the average dollar amount of the lawsuits. Perhaps more importantly, the various ways that a company and its management/officers can get sued have expanded almost exponentially.

There are so many different directions that a management liability lawsuit can come from that I cannot possibly list them all here. However, here are a few brief examples that are common for small- and medium-sized companies:

  • Mergers and acquisitions
  • Employment issues (termination, discrimination, etc.)
  • Fiduciary issues related to the benefits and investment plan
  • Ownership changes
  • Dramatic growth or decrease in size and scope of services
  • Cyber or network security-related issues

These examples cover a lot of ground that literally every company will deal with.

The bottom line is that anyone can sue your company for any reason, and even just an allegation can lead to a significant amount of defense costs. Even if you win the lawsuit, you still lose because of the amount of money, resources, and time spent to defend it. Although there are risk management solutions that you can implement to help deter and mitigate the damage of these lawsuits, the best way to protect your company is to consider purchasing a Management Liability Insurance policy. Usually it can be packaged with other important coverages, such as Cyber Liability and Employment Practices Liability to protect your company from various areas of exposure.

I highly recommend visiting with a Holmes Murphy agent who is well-versed in Management Liability. There are an extensive amount of nuances between insurance carriers. It’s also critical to be able to identify the unique needs your company has as opposed to the “average” company. The cost for this protection is reasonable and relative to the size of your company. Analyzing the need for Management Liability will — at the very least — expose some risk management solutions you may need to implement within your company.

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