Running a company can result in a number of liability exposures, from employment matters to financial decisions. To learn more about management liability and the types of insurance that can address it, we spoke with Melissa Martin, Broker, Professional Liability, Burns & Wilcox, Los Angeles, California.
What are some of the greatest risks today when it comes to management liability?
M.M.: We are living in an environment where there is a lot of consolidation, including mergers and acquisitions activity. Those can present management liability risks to the existing board of directors as well as the acquiring company’s board. We also see many companies being run on a skeleton crew or experiencing major layoffs, which comes with its own challenges — both from an employment practices perspective, as far as whether employees were let go, and proper compensation; and also because the company may not have the workforce to address smaller issues before they become larger. There are also more risks for companies that are operating in spaces that have maturing legal landscapes, like the cannabis market.
What should clients be aware of relative to these risks?
M.M.: Having a strong command of a company’s actual exposures should be top of mind. Protecting its assets and balance sheet with the right insurance packages, protecting directors and officers from liability, as well as personal assets being on the line for mismanagement are essential. They should also be aware of the constantly changing legal landscape; there are a lot of laws being drafted and passed at the state level. Companies need to be properly educated and nimble enough to either be proactive in order to avoid risk or swiftly reactive when they have run afoul of the new laws and there is an actual lawsuit.
Which insurance policies can help them respond to these threats, and what are the limits and examples of covered expenses?
M.M.: Management Liability Insurance is key for liability exposures. That includes Directors & Officers (D&O) Insurance, which protects the entity itself and the individual directors and officers of the company who make the managerial decisions; and Employment Practices Liability (EPL) Insurance, which has to do with having proper employment hiring procedures, the workplace environment being conducive, and making sure that companies are addressing any issues of harassment or discrimination. These policies can cover the cost of legal defense, settlements, and more. Policies can also respond to fiduciary liability, including the management of employee benefit plans, as well as things like commercial crime, embezzlement of funds by employees, and workplace violence.
What steps should companies take that would complement their Management Liability Insurance coverage from a prevention standpoint?
M.M.: Properly vetting board members is important. They should also know their labor laws and have strong in-office protocols. Understanding and being sensitive to other employees is essential, and they should have regular training courses to make sure they are implementing best practices on all sides.
Can you provide an example of a scenario you have dealt with that would be illustrative of the types of risks we have been discussing?
M.M.: If there is a shareholder alleging they were defrauded or fraudulently induced into investing in a company because they “cooked the books” — or gave misrepresentations on their balance sheet — that could be a lawsuit that may be picked up under the D&O Insurance policy for both defense costs and claims expenses. The details of the claim itself, including what is being alleged and what evidence they have, would determine whether there is going to actually be a settlement.
Is there anything else you think is important to know about mitigating exposures?
M.M.: There are exposures unique to every industry. This varies based on location, the size of the company, and the public visibility of the company. Virtually every company can benefit from having some sort of Management Liability Insurance, even if they do not think they are at fault or did anything wrong. Being correct does not prevent others from suing you.
What are the greatest opportunities for brokers to get into management liability insurance?
M.M.: It is always wise to read as much as you can and gain a deep understanding of coverage and where your exposures lie. Knowing what could cause a claim while understanding how the policy will respond is basically the whole ballgame. Plus, having strong market knowledge and knowing insurance carriers’ capabilities and appetites. Learn the forms in depth and keep an eye on market trends so that you can have meaningful discussions with your clients. If you become an expert in the field, your clients will rely on you.
What advice would you give brokers to increase their success rates with these products?
M.M.: Try to get a good handle on the value of your product versus just the price of it. Be careful not to equate cost with value. Every insured has a bottom line when investing in a risk management portfolio, but what is most important is that they are getting a product that is going to respond appropriately and in the most robust way possible in the event of a claim.
What features of Management Liability Insurance policies are specific to Burns & Wilcox, and what are the advantages of these?
M.M.: Burns & Wilcox has strong carrier partners who we have worked with to develop our own proprietary wording and endorsements that provide enhanced coverage over what would typically be available. That starts off negotiations with a leg-up in terms of the breadth of coverage.
WHY YOUR CLIENTS MIGHT NEED IT: In an ever-changing legal landscape, companies both large and small need to be adequately protected in the event of a lawsuit or exposure.
PROTECTS AGAINST: A company’s assets, directors and officers, and personal assets.
EXPERT OPINION: “Virtually every company can benefit from having some sort of Management Liability Insurance, even if they do not think they are at fault or did anything wrong. Being correct does not prevent others from suing you.”