Business owners work hard to make their business a success and to provide employees with a fair and positive work environment.
About Management Liability Policies
It can be challenging to keep internal policies and procedures up to date with laws such as the Family Medical Leave Act, Virginia Employment Law, etc. A management liability policy, also known as executive protection, is a bundle of coverages designed to protect an organization, its executives, and employees.
The most common types of coverage under this policy include:
- Crime – A commercial crime policy typically provides several different types of crime coverage, such as: employee dishonesty coverage; forgery or alteration coverage; computer fraud coverage; funds transfer fraud coverage; kidnap, ransom, or extortion coverage; money and securities coverage; and money orders and counterfeit money coverage.
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Employment Practices Liability (EPLI) – This covers the organization against allegations such as wrongful termination, harassment, discrimination, payment disputes, violation of FMLA, etc. A policy with “third-party coverage” will cover allegations not just from employees, but from independent contractors, patients and outside vendors.
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Fiduciary Liability – This covers the organization and the individual(s) with fiduciary responsibilities owed to the retirement (or benefit) plan participants and/or beneficiaries to act in their best interests. Fiduciary status is based on the person’s duties, not their title. Responsibilities such as choosing the investment firm, administering or monitoring the plan and transferring/disposing of assets are considered fiduciary duties.
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Directions and Officers Liability (D&O) – This covers the organization and its directors, officers, and partners for allegations such as breach of contract, conflict of interest, using company assets for personal gain, misrepresentation, financial mismanagement and lack of due diligence. Plaintiffs who may bring these suits can be competitors, lenders, suppliers, customers or other shareholders or employees.
Why Do We Need a Management Liability Policy?
- The event that leads to a claim can often be unintended. Although losses happen infrequently, the costs can be high, and dealing with allegations is time consuming. There are no caps or maximums on damages.
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The Equal Employment Opportunity Commission (EEOC) reports 72,418 wrongful employment practices charges filed in 2018.[1]
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Under Employee Retirement Income Security Act (ERISA), fiduciaries can be held personally liable for errors and omissions in administering plans. Even if many responsibilities are delegated to an outside investment firm, the organization and fiduciary are liable for the selection and continued oversight of that firm.
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Smaller organizations may not have personnel dedicated to employee benefits or the resources to evaluate advice and service provided by outside plan providers.
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EPLI policies also help insureds be proactive. Many insurance companies provide resources to policyholders at no charge – sample applications, exit interview forms, reprimand letters, employee handbooks as well as web-based training and articles.
Are We Already Covered Under Our Current Policies?
Unless the practice has obtained a specific policy for these exposures, then it is probably not covered.
Most practices have General Liability (GL) coverage on their business owners policy, but the GL is designed to cover actual property damage or bodily injury for which the insured is liable. Allegations such as discrimination and sexual harassment are typically excluded under the GL policy. Some policies may have a negligible amount of employment practices liability included – maybe $5,000 or $10,000 – which may not be enough, especially when considering the cost of legal defense.
Other types of insurance are related, but do not apply to these exposures.
Organizations that offer a retirement plan usually have an Employee Retirement Income Security Act (ERISA) bond, since the bonds are required by law. These bonds protect the assets themselves and the beneficiaries of the plan from losses (usually due to theft). ERISA bonds do not protect the fiduciaries from allegations of mismanagement of funds. Some medical practices do have Employee Benefits Liability; this insurance protects the organization from claims involving administrative errors (like failing to enroll an employee) but does not cover fiduciary responsibilities.
[1] Source: http://www.eeoc.gov/eeoc/statistics/enforcement/charges.cfm.
