Blockchain
Crypto Mining
Cryptocurrency
DAO
DeFi
Decentralized Exchanges
Financial Services
Fintech
SPACs
Web3
AI
App Developers
Cloud Computing
Education Technology
Esports
Influencers
IoT
MSPs
Media & Advertising
Podcasters
Robotics
SaaS
Social Media
Startups
Technology
TikTok Creators
Virtual Reality
YouTubers
Biotech
Cleantech
Clinical Trials
Dietary Supplement & Nutraceutical
FamTech & BabyTech
HealthTech
Life Science Risk Management
Pharmaceutical
Virtual Care, TeleHealth, & Telemedicine
Advertising Agencies
Amazon Seller
Direct-to-Consumer Brands
Ecommerce
Financial Services
PR Agencies
Professional Services
Publishers
Shopify Stores
info@foundershield.com 
28 Liberty Street, New York, NY 10005 
646.854.1058 
Management Liability Insurance
Management Liability Insurance protects companies and their individual directors and officers from financial loss resulting from claims alleging wrongful acts (i.e., breaches of fiduciary duty, mismanagement, employment practice violations, shareholder lawsuits, etc.). Plus, it offers many recovery benefits, supporting defense costs, settlement payments, and reimbursement for company funds used to indemnify executives.
What Is Management Liability Insurance?
Management Liability insurance is a specialty liability policy protecting businesses and their leadership against claims stemming from managerial decisions, actions, or inaction, such as regulatory investigations or shareholder lawsuits. It provides a unique combination of coverage options, helping companies manage their risk of litigation and mitigate threats before and after a claim arises. But why?
Management and governance risk has been increasing for some time and is more prominent now than ever, with major corporate lawsuits and regulatory actions regularly headlining worldwide news. Massive enterprises and small businesses alike felt the sting of expensive litigation brought by investors, employees, or competitors. Do you remember recent shareholder derivative lawsuits, specifically involving executive compensation? How about when regulators filed charges against a startup for misleading fundraising efforts? Private equity firms and growing tech companies also experience devastating employment practices claims every year.
It’s safe to say that an unpredictable economic and regulatory climate can send disgruntled parties into overdrive, exploiting the slightest governance failure or managerial misstep. As a result, this dynamic shift has created massive complexities in insuring management risks. However, management liability insurers have diligently evolved insurance products that provide innovative solutions to these new claims.
Management Liability Insurance is sometimes known as D&O and EPLI coverage (Directors & Officers and Employment Practices Liability Insurance). First and foremost, it’s third-party coverage (protecting the directors/officers from others), but these policies can also include coverage for the first-party costs of the organization itself. Management Liability coverage is typically comprised of three main branches to protect businesses: Directors & Officers (D&O), Employment Practices Liability (EPL), and Fiduciary Liability. As mentioned, management liability insurance can provide a unique combination of coverage options.
Management Liability Coverage
Some commercial lines of coverage provide first-party and third-party coverage, Management Liability included. In today’s litigious business environment, nearly every organization benefits from having Management Liability coverage. Claimants aren’t picky about who they target, after all.
Who Needs Management Liability Coverage
Given the significant potential for costly legal battles, companies of all sizes should consider Management Liability coverage a top priority. Claimants scout businesses with fractured governance or unfair employment practices, executing sophisticated lawsuits to hold directors, officers, or the company accountable for alleged “wrongful acts.” Loads of financial and legal resources are spent every year, resulting in expensive defense costs, plus settlements and regulatory fines. That said, Management Liability insurance is vital for the following industries:
Technology Startups
Facing rapid growth, employee disputes, and high-stakes fundraising that can trigger D&O or EPL claims.
Financial Services
Directors and officers are heavily scrutinized by regulators (e.g., SEC), making them prime targets for D&O and Fiduciary claims.
Non-Profits
Board members face similar D&O risks as for-profit companies but must also manage donor and public trust issues.
Any Employer with Staff
EPLI is crucial for any company that hires, fires, or manages employees, regardless of industry.
What Does Management Liability Insurance Cover?
You will have to consult your policy documents to confirm exactly what coverage your Management Liability policy provides but here are a few scenarios that typically would and would not be covered. You can read more about what management liability covers here.
Directors & Officers (D&O) Liability
Many policies cover losses caused by actual or alleged wrongful acts committed by directors, officers, or management. They also cover the entity’s costs when it must indemnify its executives. For a loss to be covered, it must result directly from an alleged failure to manage the company properly (e.g., breach of fiduciary duty). This policy generally covers the costs to defend against the claim. It may also cover the cost of settlements or judgments.
Employment Practice Liability (EPLI)
Many policies cover losses resulting directly from employment-related wrongful acts such as wrongful termination, discrimination, harassment, and failure to promote. The coverage afforded under an EPLI policy differs from that provided under your General Liability policy, which typically excludes claims arising from employee misconduct. EPLI covers the company’s and management’s liability due to these practices.
Fiduciary Liability
Fiduciary coverage applies when a company or its fiduciaries (those who manage the company’s employee benefits plan, such as a 401(k)) face claims alleging mismanagement of the plan’s assets. For instance, a fiduciary may be accused of making imprudent investment decisions or failing to disclose required information to plan participants. This coverage typically applies to the defense costs and potential settlements arising from such a claim.
Entity Coverage
Policies may cover the legal entity itself (the company) for certain claims, particularly for securities claims (in public company policies) and many Employment Practices Liability claims. They may also include the cost of hiring an attorney to assess the firm’s obligations under applicable laws and regulations. Some policies cover the cost of responding to a formal regulatory investigation.
Crisis Management/Public Relations Costs
A lawsuit can severely damage your firm’s reputation. So, some policies cover your marketing and public relations costs to protect your company’s reputation following a major management liability event. This coverage is sometimes included within the D&O section.
Management Liability Insurance Policy
Management Liability covers:
How Can I Manage My Management Liability Policy & Risks?
Insurance carriers continually evolve their management liability policies to keep up with an ever-changing legal and regulatory landscape. However, organizations must do more to meet new prerequisites of management liability coverage.
For example, company leaders must rally their workforce to accept more governance and employment responsibility. This approach includes ongoing employee training on non-discrimination and harassment policies and providing workers with clear, enforced human resources procedures to manage personnel matters. Risk mitigation involves more than mere legal compliance or an external Board of Directors to prevent a lawsuit — though it’s a great start. Instead, creating a healthy governance culture starts with leaders at the top and trickles down to the team.
While developing a litigation response plan is vital, proactive governance and HR measures are now standard. Furthermore, ensuring consistent and fair employment practices has become a top priority in recent years, not to mention mandating clear conflict of interest and corporate ethics policies. Insurance carriers aren’t as likely to cover your business without these elements in a risk management strategy.
Consider your management exposures, from your corporate structure and employment manual to financial reporting and benefits administration. By thoroughly analyzing your management risks, you can better manage your Management Liability insurance policy and protect your business more profoundly.
What Does A Management Liability Policy Not Cover?
Similar to many other insurance policies, Management Liability coverage has exclusions. For example, Management Liability insurance doesn’t cover the following claims:
Remember that management-related losses can occur with other threats, so it’s vital to know the gaps your insurance policies might create. Lastly, lawsuits routinely involve claims not covered by non-management policies, thus launching the idea of “silent D&O,” where some management-related incidents aren’t explicitly covered or excluded in traditional insurance policies. It’s worth exploring these gaps with a trusted commercial insurance broker to ensure adequate coverage.
Management Liability Insurance Cost
As with most commercial insurance policies, the cost of Management Liability insurance depends on several factors. Following are some of the main points insurance carriers will consider when calculating your premium.
Management Liability Insurance Cost Factors
What is your company’s revenue, valuation, debt load, and financial stability?
What type of Board of Directors structure do you have, and what are your internal control standards?
Financial services and pharmaceutical companies are more likely to be subject to shareholder and regulatory action than a standard retail store.
The total number of employees, the rate of turnover, and geographic distribution impact the risk of EPLI claims. Underwriters will recognize the increased risk associated with layoffs or remote work arrangements.
Private companies often pay less than public companies, and those planning an IPO face increased scrutiny and cost.
Management Liability Insurance Claim Examples
The decisions made by a company’s leadership are constantly under scrutiny by shareholders, employees, and regulators. To illustrate how a Management Liability policy responds to these varied pressures, the following examples demonstrate real-world scenarios where organizations and their executives faced significant allegations of wrongful acts and relied on their coverage to pay for defense costs and settlement or judgment expenses.
A US-based manufacturing firm, AutoFab, terminated a long-term employee who subsequently filed a lawsuit alleging discrimination based on age. The company incurred significant costs investigating the claim and defending the CEO and HR manager in court. The EPLI policy covered the legal defense costs and the subsequent mediation settlement, which totaled approximately $350,000.
The officers responsible for managing the 401(k) plan for a regional consulting firm, ThinkWell, were sued by plan participants. The participants alleged that the fiduciaries breached their duty by allowing the plan to pay excessive administrative fees and by including certain proprietary, high-cost investment options. The Fiduciary Liability policy covered the cost of legal counsel for the fiduciaries and the subsequent costs to restore the plan’s losses, totaling approximately $750,000.
A SaaS platform, DataFlow, faced an inquiry from a regulatory body (like the FTC or SEC) regarding its data privacy disclosures and statements made to investors. The company’s directors and officers were named in the inquiry. The D&O policy’s coverage for regulatory investigations helped cover the significant legal fees required to respond to the inquiry and prepare executives for interviews.
A publicly-traded tech company, CloudNine, was sued by its shareholders who alleged that the Board of Directors knowingly misstated financial forecasts leading up to a poor earnings report, resulting in a sudden drop in stock price. CloudNine’s D&O policy covered the legal defense costs for the directors and officers, plus the eventual settlement amount paid to the shareholders. Total expenses exceeded $15,000,000.
A US-based manufacturing firm, AutoFab, terminated a long-term employee who subsequently filed a lawsuit alleging discrimination based on age. The company incurred significant costs investigating the claim and defending the CEO and HR manager in court. The EPLI policy covered the legal defense costs and the subsequent mediation settlement, which totaled approximately $350,000.
The officers responsible for managing the 401(k) plan for a regional consulting firm, ThinkWell, were sued by plan participants. The participants alleged that the fiduciaries breached their duty by allowing the plan to pay excessive administrative fees and by including certain proprietary, high-cost investment options. The Fiduciary Liability policy covered the cost of legal counsel for the fiduciaries and the subsequent costs to restore the plan’s losses, totaling approximately $750,000.
A SaaS platform, DataFlow, faced an inquiry from a regulatory body (like the FTC or SEC) regarding its data privacy disclosures and statements made to investors. The company’s directors and officers were named in the inquiry. The D&O policy’s coverage for regulatory investigations helped cover the significant legal fees required to respond to the inquiry and prepare executives for interviews.
Speak with a Management Liability Insurance Broker
Founder Shield is a data-driven insurance brokerage serving high-growth, innovative industries. We have a passion for creating and developing innovative risk management products across emerging industries and work hand in hand with clients and underwriters to ensure transparency, efficiency, and reliability every step of the way. Our team has specialized expertise and experience in providing management liability insurance services.
We partner with the leading management liability insurance carriers to craft tailored risk management programs for public companies and venture-backed companies preparing for funding rounds. With insurance a major budget item, we understand that companies look for new and creative solutions to help manage increasing costs while also securing best-in-class coverage.
Management Liability Insurance FAQs
Does D&O Insurance Cover Criminal Acts?
The question of whether D&O insurance covers criminal acts is a nuanced one, and the general answer is no, D&O insurance typically does not cover...
962
0
Is the New Director Automatically Covered by the Existing D&O Insurance Policy, or Do I Need to Notify the Insurer?
Yes, you should generally notify your insurance company when you add a new director to a board seat previously held by another director. This is...
231168
2
How Much Does D&O Insurance Cost?
Here are some key factors affecting D&O insurance costs: • Company size and financial health: Larger, less stable companies face higher premiums. • Industry: High-risk...
4570
5
Why Would a Company Carry D&O Insurance, Even If It Has Not Raised Money From Investors?
Carrying Directors and Officers (D&O) insurance can be a prudent decision for companies, even if they have not raised money from investors, for a multitude...
4623
7
What Are the Key Differences Between Directors & Officers Insurance and Personal Guarantee Insurance?
Directors & Officers (D&O) Insurance protects company directors and officers from personal liability arising from lawsuits related to their management decisions. It covers legal costs...
3707
3
