Directors’ liabilities and Covid-19

It’s no secret that the last two years have been particularly challenging for businesses and their employees. But as we learn to live with Covid-19, the pandemic has also highlighted the importance of preparation in general. For many businesses, this means keeping contingency plans up to date but it also means making sure appropriate management liability insurance (MLP) is in place. Here, we explore directors’ liabilities and how MLP can mitigate potential personal financial losses.

• What claims can be made against directors?
• How does management liability insurance reduce the risk to business leaders and directors?
• Why is management liability insurance important now?
• What should directors be aware of when comparing MLP insurance?

What claims can be made against directors?

Directors have a wide range of responsibilities – as business owners and senior leadership teams will know all too well. But Covid-19 has forced businesses into unchartered territory as they had to make tough decisions and reassess contingency plans without knowing what the full implications might be.

Unfortunately, the speed at which some businesses have been forced to adapt, has left them open to legal action. In fact, 70% of claims management companies have had claims registered with them already in relation to how businesses have managed the pandemic, with more predicted to be on the way.

However, if navigating a pandemic wasn’t tough enough, it’s not just employees that businesses are vulnerable to litigation from, but also shareholders and consumers too.

Examples of the types of claims that can be seen in relation to the pandemic include:

• Lack of protective equipment.
• Inadequate supply chain planning leading to delays and loss of business income.
• Inadequate general management leading to lack of business continuity and loss of income or even insolvency.
• Distress due to leadership mismanagement.
• Discrimination, for example if businesses are managing risks differently for different teams.
• Unfair dismissal, for instance if an employee speaks out against how a business is managing Covid-19 protocols and is subsequently dismissed.
• Unfair redundancy selection after furlough.

The vast majority of these claims aren’t unique to the pandemic, particularly when it comes to protective equipment for any risky environment (like asbestos removal). Similarly, claims are regularly made in relation to poor employment practices, such as discrimination and unfair dismissal. The pandemic has simply increased the scrutiny of decisions made by management and created a sense of urgency around the issue of emergency planning and claims management.

How does management liability insurance reduce the risk to business leaders and directors?

Management liability insurance (MLP) is a comprehensive policy providing three key areas of cover. Together, they provide businesses and business leaders with robust protection against the costs associated with claims being brought. MLP typically includes:

Directors’ and officers’ insurance (D&O)

Covers legal fees and any settlements if a claim is made against a director or member of the leadership team resulting from a wrongful act (or allegation of a wrongful act) whilst managing the business. Additional features can also be added, for example public relations crisis management as well as cover for non-executive directors.

Corporate legal liability insurance (CLL)

Similar to directors’ and officers’ insurance but instead of protecting individuals, this protects the company itself. This section usually covers all costs related to investigating the claim, plus resulting settlements awarded.

Entity employment practices liability insurance (EPL)

Entity employment practices liability is essential grievance cover and will protect against claims from employees alleging unfair selection for redundancy, harassment, unfair dismissal, and discrimination, amongst other things. The list of potential grievances is long, so good coverage is essential. This policy covers investigation costs, legal fees, and settlements.

Why is management liability insurance important now?

Covid-related claims against firms and organisations have been predicted to increase by as much as 40%.

It’s also worth bearing in mind that many businesses are only just starting to get back on their feet and conversations about working from home and returning to offices could be unresolved. In practice, it means there’s still lots of time for reflection, and hindsight could result in business decisions being challenged, leading to claims.

With all this in mind, it’s vital to ensure that your business, directors, and senior leadership teams are protected as best they can. MLP can’t stop claims being made against your business or its leaders, but they can ease the financial burden by covering your legal expenses (including the cost of professional advice) along with any settlements awarded.

What should directors be aware of when comparing MLP insurance?

MLP is a complicated class of insurance and it’s crucial that the policy gives you and your business the protection it needs.

For businesses and business leaders, an objective approach can help ensure your business is covered from every angle – from an employee and shareholder perspective. Remember that robust insurance rarely comes as an off-the-shelf package which is why at Alan Boswell Group, we always take a flexible approach. We tailor policies to suit you so that you can be confident about getting the support and protection that reflects the risks your business and directors’ face. For more information about how we can help, contact an expert member of the team on 01603 218000.