D&O & Management Liability
The people who make the decisions can be sued for making them, and that is a different policy from the one covering the company itself.
Organizations with a board, a leadership team, or an employee benefit plan.
Any structure where people make decisions on behalf of others carries this exposure. It does not require outside shareholders and it does not require a large company.
- Companies with a formal board, or a named officer group whose decisions bind the business.
- Any employer sponsoring a retirement or other employee benefit plan, where ERISA fiduciary duties attach.
- Officers who sit on the committee that selects or monitors a plan's investments.
- Organizations using outside administrators, advisors or consultants for a plan, who may themselves be fiduciaries.
- Leadership groups relying on company indemnification, where the jurisdiction's rules on it decide who actually pays.
Management liability is not one policy. It is three, answering three different claims against the same group of people.
Directors and senior officers are paid to make consequential decisions. When a decision turns out to be wrong, the claim can be brought against the individual, against the company, or against both, and none of it is a claim a general liability policy was written to answer.
Management liability is normally built as three layers: directors and officers liability for the decisions themselves, employment practices liability for how people are managed, and fiduciary liability for the employee benefit plans that leadership oversees. Each layer has its own trigger.
Where management liability claims come from.
Decisions, records and plans, rather than accidents.
- The numbers in the financial documents. Mistakes or missing information in company accounts and other financial documents, and errors in reporting, are among the most familiar sources of a D&O claim. The exposure is the record itself, not an event.
- Regulatory compliance that failed. A failure of regulatory compliance can produce legal fees, settlements and losses against individuals as well as the company.
- Human resources policy that was not enforced. Failing to properly enforce human resources policy is a decision-level failure, which is why it appears in D&O and not only in the employment practices layer. Employee lawsuits over wrongful termination, harassment and discrimination commonly name directors personally as well as the business.
- A benefit plan decision that simply went badly. Under ERISA a fiduciary can face a claim for an unintentional breach. An investment decision for the plan that did not work out is enough, and the fiduciary can be asked to make good the loss.
- Fiduciary status nobody formally assigned. Control over the plan is what creates the duty, not a job title. Officers, administrators and outside advisors can all find themselves holding it without having agreed to it in those terms.
- The claim arrives years after the decision. The coverage period may turn on when the claim against the person is made, not when the failure or mistake happened. A decision taken under one policy can surface as a claim under another, or under none.
The policy choices that decide how this works in practice.
D&O and fiduciary policies differ more in structure than in headline limit.
- Decide who the policy is covering. There are different types of D&O policy: some offer coverage for managers only, others extend to the company as a whole. The type of business, and who a claim would realistically be brought against, is what settles which one fits.
- Choose between indemnity and duty to defend. An indemnity policy leaves the defense with your own legal team. A duty to defend policy puts the defense in the insurer's hands with the costs covered. They are different experiences of the same claim and worth choosing deliberately.
- Read the coverage period carefully. Where the policy responds by reference to when the claim is made rather than when the mistake happened, continuity across renewals and changes of carrier becomes part of the coverage rather than an administrative detail.
- Keep the fiduciary layer in the conversation. The duties created by the Employee Retirement Income Security Act of 1974, known as ERISA, were written to raise the liability carried by anyone overseeing an employee benefit plan, and that exposure commonly sits outside a general liability policy. It is not automatically inside a D&O policy either. The three layers are usually structured, limited and renewed together, so if the business sponsors a benefit plan, fiduciary liability is a separate decision to make at the same time.
- Narrow the fiduciary coverage to the plan you actually run. Coverage options can be narrowed so the protection matches the risks the plan presents, and the specialist ERISA defense some policies include is worth weighing alongside the limit.
- Know what moves the D&O premium. The size of the business, the industry it operates in, its finances and revenue, and its history of D&O claims.
Management liability questions we hear most
What does D&O cover that a general liability policy does not?
General liability responds to physical harm. D&O responds to decisions: mistakes or missing information in financial documents, errors in reporting, breaches of financial duty, failures of regulatory compliance, and human resources policy that was not properly enforced. The loss is economic and the defendant is often a person rather than the company.
Does D&O cover fraud, or a director who benefited personally?
No. D&O typically covers wrongful decisions but not decisions classed as criminal acts, and not decisions designed to benefit the director personally, such as fraud and embezzlement.
Who counts as a fiduciary under ERISA?
Anyone with any control over the employee benefits plan, whether they work for the business or not. That can include administrators, accountants, consultants, investment advisors, investment managers and lawyers. Officers who oversee the scheme carry fiduciary duties as well.
Is our retirement plan already covered by our D&O policy?
Do not assume so. Many general liability policies do not cover ERISA claims at all, and fiduciary liability is generally written as its own coverage. Whether your current program reaches a plan fiduciary claim is a question to answer against the policy wording.
Does the policy pay the individual or the company?
It can be either. Depending on where the business is based and that jurisdiction's rules on director indemnification, the policy may cover damages and costs paid by the individual or by the business.
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