We live in a world that is increasingly becoming more and more litigious. According to the Ministry of Justice (MOJ), employment tribunals surged in 2020; in their latest report which looked at quarter four of last year, Single Employment Tribunal receipts – where an individual makes a claim – increased by 25%.
As this litigation culture continues to grow, if you don’t have management liability insurance (which includes and is also known as directors and officers insurance), it may be something worth investing in to protect your senior management in the event that a claim is made against them.
What is management liability insurance?
Your directors, partners, officers and key managers are likely to have more responsibilities due to the nature of their role. While their work can be exciting and fulfilling, it does put them at a higher risk.
Management liability insurance covers the cost of any compensation claims made against your directors, officers or high-ranking management for alleged wrongful acts. Claims could be made by disgruntled employees, clients, investors, stakeholders and even regulators and could involve civil, criminal or regulatory proceedings. A management liability policy can also cover any legal costs that arise for directors in defending their case and extends to include company legal liability and employment practices liability.
What is a wrongful act?
According to the Association of British Insurers (ABI), wrongful acts include:
- Breach of trust
- Breach of duty
- Misleading statements
- Wrongful trading
Mistakes sometimes happen. However even if a director, officer or key manager acted in good faith and didn’t intend on committing a wrongful act, this could still trigger a claim.
Why is management liability insurance important?
If your senior leaders don’t have management liability insurance and a claim is brought against them, they could lose their position as director. Civil proceedings against them can bring about costly legal expenses and awards for any damages and, in extreme cases, there might be criminal prosecution which could lead to fines and even imprisonment.
Are there any COVID implications?
Covid-19 has presented a unique and complex set of challenges for businesses and their directors and officers. Due to the ever-changing rules and regulations over the last year, it will be hard for decision-makers within firms to know that they responded to everything efficiently and effectively. Unfortunately, decisions they made during the pandemic while well-intended could lead to litigation.
One thing on many businesses’ minds will be protecting the health and safety of employees and providing a secure working environment under health and safety legislation.
Can an employer require an employee to be vaccinated? This is an untested area and has been discussed widely in the media. Article 8 of the European Convention of Human Rights protects the right to private and family life. The right for an individual to choose whether or not to be vaccinated is likely to fall within this right. It is possible to interfere with this right “in the interests of national security, public safety or the economic wellbeing of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others”.
Therefore, if there is a real need to protect health or economic wellbeing, it may be possible to override Article 8. It requires a careful balance between the rights of the individual and employer which could also include those of service users. However, there is the possibility that decisions directors and officers make around whether employees should be vaccinated before being allowed to work or return to the office could result in litigation.