March 06, 2019

Packaged Management Liability Insurance Policies Ideal for Small and Medium-Sized Enterprises

Howard Coleman
Founder, Chairman, CEO/Genelex Corporation

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Everyone who owns a car or home has experience with insurance and if you’re in business with PD (property damage) and CGL (commercial general liability) insurance. Unlike MLI (management liability insurance), consumer policies tend to be straight-forward, “cookie cutter” policies or forms as they’re called in the industry. These and all insurance forms (insuring agreements) are initially developed by the national ISO (Insurance Services Office, Inc.) and approved by each State Insurance Commissioner. Some insurance companies may generate their own forms that must also be approved by the relevant Insurance Commissioner.

MLI covers four distinctly different business risks: D & O (directors and officers) liability, EPL (employment practices liability), cyber for coverage of damage caused by cyber criminals (hackers) and fiduciary to cover risks associated with the management of employee retirement and benefit plans, such as a 401(k). These policies are not E & O, (errors and omissions) ie professional or product liability insurance. MLI applies to users of technology while E & O applies to producers of technology, services or givers of advice.

Until recently MLI policies needed to be applied for and purchased separately. Now they are available bundled with a BOP (business owners policies) and business insurance package policies. These policies are designed for smaller businesses, cost-effective and require filling out but a single application. They are not available to public companies. Your insurance broker can help you understand what policy will be best for your company. Also be sure you’re working with a broker who can place your insurance with many insurance companies, rather than an agent who represents one company.

Specifics of these policies you need to understand include how the aggregation of limits will affect your overall coverage. These policies are also usually written on a duty-to-defend basis. Depending on how they’re written you may be reimbursed for legal expenses more or less as they are accrued or only following “final adjudication” of the case. You also want to be sure that coverage will continue if you settle a case without admission of liability. 

D & O insurance comes in four parts A – D, Part A directly indemnifies company directors and officer and usually other top management and part B covers the company’s indemnification of those persons. Part C covers liability resulting from actions by the SEC (US Securities and Exchange Commission),

Employment Practices Liability covers company personnel and the company against liability generated by wrongful acts caused by unfair and/or illegal treatment of employees. It does not cover liability for criminal acts, no insurance does, but will defend the company and/or its employees against accusations of such acts prior to “final adjudication.”

Cyber is an unusually comprehensive insurance that will cover client notification expenses and credit monitoring, computer forensics, public relations and other recovery expenses. It will cover business interruption, but not software or hardware upgrades, long-term reputational damage or loss of key employees. Unlike other insurances, it will indemnify for fines and penalties such as may be levied by the PCI (Payment Card Institute), courts or government agencies. Some policies also provide a 24/7 hotline and personnel who will take over in the event of a data breach.

Fiduciary insurance was developed specifically to cover the personal liability to fiduciary managers of employee benefit and retirement plans mandated by ERISA (1974 Employee Retirement Income Security Act).

Competition in the insurance industry is making access to MLI more available than ever. Nevertheless, it is not a substitute for adhering to corporate governance, human resources, cybersecurity and employee benefits management best practices.

Comments? You can contact me directly via my AdvisoryCloud profile.

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