Understanding the Difference between Management Liability and Directors & Officers Insurance

Distinguishing between Management Liability (ML) and Directors & Officers (D&O) insurance can be challenging. While these products share some similarities, they serve distinct purposes and address different types of risk.

This article provides a brief overview of the coverage generally offered by each policy and highlights the key differences to help clarify the nuances between them.

The Fundamentals

D&O Insurance is designed to protect the personal assets of a company’s directors and officers against claims alleging wrongful acts committed while performing their management duties.

In contrast, ML Insurance offers broader protection, particularly suited to small and medium-sized enterprises (SMEs). While it includes a D&O style of protection covering the company and its executives, cover can also be extended to other areas such as employment practices liability, employee theft and customer or contractor crime, costs associated with breaches of statutory obligations and tax audit expenses, providing a broader solution for the business.

Directors & Officers (D&O) Insurance

Focus: Protects individual directors and officers from personal liability arising from decisions and actions taken in their management roles.

Typical Insured: Larger companies including publicly listed companies.

Coverage: Wrongful acts such as breach of fiduciary duty, actual or alleged error, misstatement or misleading statement or omission.

Scope: A standalone policy that generally does not include additional coverages beyond the protection of directors and officers.

Management Liability (ML) Insurance

Focus: A broader policy offering protection for both the company and its management team.

Typical Insured: Small to medium-sized businesses (SMEs).

Coverage: Includes a D&O style of cover for the company and its executives for liability to pay compensation for wrongful acts relating to the management of the company, along with:

• Employment Practices Liability (EPL): Cover for claims from employees relating to harassment, discrimination, or unfair dismissal.
• Crime Cover: Cover against employee fraud or dishonesty.
• Statutory Liability: Cover for costs associated with breaches of statutory obligations, such as Work Health and Safety laws and environmental regulations.
• Tax Audit Expenses: Cover for professional fees incurred during a tax audit.

Scope: A packaged policy that can be tailored to include various coverages. The D&O style of cover for the company and the management team is typically mandatory, while other sections can be added based on your client’s specific needs.

Key Differences at a Glance

• Scope:

D&O insurance focuses exclusively on protecting individual directors and officers. ML insurance includes a D&O style of cover for the company and the management team but can also extend to other operational risks.

• Target Audience:

D&O insurance is generally suited to larger or publicly listed companies. ML insurance is designed for SMEs and typically includes a ‘securities offering’ exclusion, making it unsuitable for listed entities.

• Included Coverages:

ML insurance bundles multiple coverages into a single policy. Rather than arranging separate policies for each risk area, businesses can benefit from a packaged solution that simplifies administration and may offer cost efficiencies. This makes ML particularly attractive for SMEs seeking broad protection without the complexity of managing multiple policies.

Conclusion

Both Directors & Officers (D&O) and Management Liability (ML) insurance play vital roles in protecting businesses and their leadership teams.

D&O insurance provides protection for directors and officers for claims arising from alleged wrongful acts committed in their roles potentially shielding them from personal liability.

ML insurance, on the other hand, offers a more holistic approach, covering a wider range of risks and potentially providing broader protection for the company and its management team.

By understanding the differences, you can guide your client towards the right solution to ensure they have appropriate and effective coverage in place.

Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. Insurance cover is subject to terms, conditions, limits, and exclusions. Underwriting criteria applies. When making a decision to buy or continue to hold a product, you should review the relevant policy documents.