The Value of a Management Liability Policy

In this month’s Nursery Management Today magazine our Associate Director, Jenny Hyde looks at the benefits to your nursery of having a Management Liability Policy and what is a management liability policy?

In the past 24 months, you and your management team will have made many pressured decisions effecting your colleagues, customers, suppliers and other stakeholders in addition to complying with your moral and legal obligations.

In the aftermath of the pandemic, insurers are reporting an increase in claims against businesses and individuals linked to the decisions they made in the running of their business. This rise is partly attributable to Covid-19, but is also a reflection of our increasingly litigious society and uncertain economic climate.

Claims can arise from customers, creditors, competitors, suppliers, employees and regulators (including Ofsted, the Care Quality Commission, the Health & Safety Executive and HMRC).  Unfortunately, a claim does not have to be justified or factual to incur legal defence costs.

A Management Liability policy is a comprehensive form of insurance that exists to cover alleged wrongdoing, directed at the company as a whole or its’ individual Owners, Directors or Managers.

Management Liability Insurance consists of three different but complementary covers:
1.    Directors’ and Officers’ Liability
2.    Corporate Legal Liability
3.    Employment Practices Liability

Each one protects a particular aspect of your business and each is as important as the others. If a claim is made, a company and individuals can both be named in an action.

Directors’ & Officers’ Liability – Cover for Individuals

People in a position of responsibility in the business can have a claim made against them if their actions or decisions have negative consequences. If accused of wrongdoing, they can be investigated, sued or prosecuted.

Directors and Officers Liability protects the individual from legal defence costs, expenses and any civil damages awarded against them, (provided they have not acted criminally or intentionally).  Remember, you don’t have to be guilty to incur significant legal costs.

As a director your personal liability is unlimited and if someone makes a claim specifically against you, your own assets are at risk if you don’t have adequate Directors’ & Officers’  Liability insurance.

Examples of Directors’ & Officers’ claims include:

  • An accusation of bullying or harassment is made against a nursery manager.
  • The Health & Safety Executive investigate an individual suspected to have breached their Duty of Care following a serious accident.
  • After the sale of the nursery, the acquiring company brings a lawsuit against the previous Director alleging misrepresentation of the financial standing of the company.

Corporate Legal Liability – Cover for the Company

Providing protection for your company against the financial consequences of claims made against it. Claims can come from different sources including customers, employees and regulatory bodies. Policy cover includes the cost of defence, and in some cases settlements, fines and awards.
Example Corporate Legal Liability claims include:
  • A Health & Safety prosecution following a serious injury to an employee at work after an investigation determined that better Health & Safety Practices should have been in place.
  • Prosecution by the Information Commissioner’s Office for a data breach.
  • The company is accused of maladministration of the company pension, which resulted in the value of staff pensions plummeting.
  • The Food Standard agency prosecutes a nursery after a child suffers anaphylactic shock after ingesting peanuts. Despite knowing of the child’s allergy, ingredients weren’t properly tracked or controlled.

Employment Practice Liability – Protection against employee-related legal action

This protects a company against financial loss from claims made by employees for a wide range of employment practice violations, including unfair dismissal or discrimination on grounds of sex, race, disability, religion, belief or sexual orientation.

Understanding the protection you currently have

A lot of packaged nursery insurance products include Directors’ & Officers’ protection as a standard or an optional cover.  Generally, packaged products do not include Corporate Legal Liability or Employment Practice Liability which are available under a separate full Management Liability policy.  Legal claims against a company are often made in tandem with claims against individuals within the company. It’s not always clear where liability lies, and so it’s important to cover all bases.

Your nursery insurance policy will likely also include Legal Expenses cover which provides protection against legal costs incurred in pursuing or defending a range of legal disputes.

Whilst there is certainly a cross-over in the cover provided, there is one fundamental difference between the two products.  Legal Expenses policies include a “prospects of success clause” requiring a 51% or more chance of the policyholder successfully defending their case which must be satisfied for the policy to respond.  In contrast, Management Liability policies do not contain this clause allowing the policy to respond even where prospects are not necessarily in your favour.

Why you should seriously consider Management Liability Insurance?

Companies have a huge amount of responsibility to a wide range of different parties including their employees, customers, shareholders and suppliers. Even large corporations with dedicated legal teams can find that something slips through the net, resulting in unexpected legal claims.

Litigation against companies is becoming increasingly common and legal costs continue to increase.  In addition, liability shifted from corporate responsibility towards personal accountability. Putting individuals’ livelihoods and personal assets at risk, should they need to fund their own legal defence.

Management liability insurance can offer companies and their management team peace of mind that both their business and key individuals can survive unexpected serious legal action.