Management Liability Insurance (D&O)

What is Management Liability?

Why do you need it?

• Directors and Officers at Risk
  Managers, directors, and officers can be held personally liable for their actions or decisions that affect the company. Without Management Liability insurance, their personal assets could be at risk to cover legal defenses or settlements.
• Investor Assurance
  Investors often require Management Liability insurance as a condition of funding to mitigate the risk of financial losses due to management decisions, safeguarding their investment.
• Mounting Legal Expenses
  The cost of defending against claims, even if they are unfounded, can be staggering. Management Liability insurance covers legal fees, which can protect the company’s bottom line and individuals’ financial security.
• Evolving Legal Obligations
  Businesses operate in an environment of ever-increasing regulatory complexity. Management Liability insurance helps cover the costs associated with regulatory investigations and possible violations.
• Employment Practices Liability
  In the age of heightened awareness around workplace rights, claims related to employment practices are on the rise. This insurance shields against claims of harassment, discrimination, wrongful termination, and similar employment issues.
• Financial Mismanagement Allegations
  Claims of financial mismanagement or failure to adhere to company bylaws or contractual obligations can lead to costly lawsuits. Management Liability insurance provides a financial buffer against these types of claims.

Common coverage parts

• Directors and Officers (D&O) Liability
  Protects individual directors and officers against personal losses from lawsuits alleging wrongful acts in their management roles.
• Employment Practices Liability (EPL)
  Guards against claims by employees alleging violations of their legal rights, such as discrimination and wrongful termination.
• Fiduciary Liability
  Offers protection for fiduciaries of employee benefit plans against claims of mismanagement of plan assets or non-compliance with plan regulations.
• Crime Coverage
  Safeguards the company against financial losses resulting from criminal acts like theft, fraud, and forgery by employees.
• Kidnap, Ransom, and Extortion Coverage
  Provides financial protection and covers expenses in cases of kidnapping, ransom demands, and extortion involving executives or the company.

Common exclusions

• Intentional Illegal Acts
  Deliberate criminal acts or illegal activities knowingly committed by insured parties are generally excluded. This includes fraud, dishonesty, and any illegal profit or remuneration obtained by directors or officers.
• Prior Acts or Known Circumstances
  Claims arising from wrongful acts that occurred before the policy's retroactive date, or from circumstances that were known to the insured before the policy began, are typically not covered.
• Bodily Injury and Property Damage
  While some overlaps can exist with other policies, traditional Management Liability insurance usually excludes claims related to physical injury, property damage, or pollution, unless such claims arise from a wrongful employment practice.
• Professional Services
  Errors and Omissions (E&O) related to the rendering or failure to render professional services may be excluded from a general Management Liability policy, as these are typically covered under separate Professional Liability (E&O) insurance.
• Insured vs. Insured Claims
  Claims brought by one insured party against another within the same company (e.g., director vs. director) are often excluded to prevent collusion. However, there can be exceptions or carve-backs for certain scenarios, such as whistleblower actions.
• Patent and Trade Secrets
  Infringement of patents, theft of trade secrets, or intellectual property disputes are typically not covered under Management Liability insurance and require specialized intellectual property insurance.
• War and Terrorism
  Acts of war, terrorism, and similar actions are standard exclusions in many insurance policies, including Management Liability insurance.

Limits and deductibles

• Aggregate vs. Per-Claim Limits
  Management Liability policies may specify both aggregate limits, which cap the total payout for all claims within the policy period, and per-claim limits, which set the maximum payout for individual claims. Balancing these limits is key to ensuring comprehensive coverage.
• Factors Influencing Limits Selection
  The choice of policy limits is influenced by several factors, including the size and nature of the business, industry-specific risks, historical claims data, and potential financial impact of claims. Companies in high-risk industries or those with a history of claims may require higher limits to adequately protect against potential liabilities.
• Typical Limits
  For small to medium-sized enterprises (SMEs), Management Liability insurance limits can range from $1 million to $5 million. Larger corporations, especially those with significant exposure to shareholder litigation or regulatory scrutiny, might opt for higher limits, ranging from $10 million to $50 million or more, depending on their specific needs and risk assessment.

• Typical Deductibles
  For SMEs, deductibles can range from $2,500 to $25,000 per claim. Larger companies or those seeking higher policy limits might face higher deductibles, potentially exceeding $100,000 per claim, as a means to lower premium costs or reflect a higher risk profile.
• Impact on Premiums
  Generally, a higher deductible results in lower premium costs, as it reduces the insurer's risk by increasing the policyholder's financial responsibility for each claim. Companies must carefully consider their ability to absorb these out-of-pocket costs when selecting a deductible.

Typical cost

• Company Size and Revenue
  Larger companies with higher revenues generally face higher premiums due to the increased financial risks associated with their operations.
• Industry Risks
  Businesses in industries perceived as high-risk (such as financial services, healthcare, or technology) often incur higher costs due to the greater likelihood of claims.
• Claims History
  Companies with a history of claims related to management liabilities can expect higher premiums, as past claims are indicators of potential future risks.
• Coverage Scope and Limits
  The broader the coverage and the higher the policy limits, the more costly the premium. Companies must balance their need for comprehensive protection with the cost implications.
• Deductibles
  Higher deductibles can reduce the premium cost, but they increase the company's financial responsibility in the event of a claim.

• Small to Medium Enterprises (SMEs)
  For SMEs, annual premiums can range from a few thousand dollars to over $20,000. The lower end of this range typically applies to businesses with lower revenue, fewer employees, and less complex risk profiles.
• Larger Corporations
  For larger companies or those in higher-risk industries, annual premiums can easily exceed $20,000, with some reaching into the hundreds of thousands of dollars. The exact cost depends on the extent of coverage required and the specific risk factors involved.

Useful statistics

• According to a report by Chubb, more than a quarter (27%) of private companies reported experiencing a D&O claim in the past three years, with costs exceeding $100,000 for 41% of those affected.

Why have it with Koop?

• Industry Expertise
  Koop understands the unique risks and challenges faced by technology companies. This specialized focus means they can offer policies tailored to the specific needs of tech businesses, such as coverage for software development risks, data breaches, and intellectual property issues.
• Risk Management Automation
  Koop offers an advanced Enterprise Risk Management (ERM) automation tool that allows companies to effectively manage contractual requirements, reduce risk through risk controls, and unlock insurance benefits such as insurance discounts and simple renewals. Additionally, the tool saves a lot of time on insurance and compliance tasks.
• Customized Solutions
  Unlike one-size-fits-all policies, Koop provides customizable insurance solutions that can be adapted to fit the unique operational needs of your tech company. Whether you're a startup or an established enterprise, Koop can tailor a policy to match your specific risk profile and business model.

How to get started?

1. Click "Sign Up" to instantly create an account on our platform
2. Go in, select Management Liability, and fill out an application
3. Get a quote, carefully review it, and hit "Accept"