Corporate insurance has gained importance in India in recent years. Businesses explore a broad spectrum of insurance policies to avail, ensuring benefits, especially in the long run. The insurance provides the required coverage in times of meeting financial obligations, within a regulatory framework.
Two types of insurance policies this blog discusses
The blog here gives the readers clear, simple ideas about the basic aspects of two types of insurance policies, and their differences. One of the policies is a D&O insurance policy. The other is termed as the management liability insurance policy.
The directors and officers insurance
It is the insurance policy that covers the legal expenses of fighting a lawsuit that a shareholder or employee or a third party files against the directors/officers of the company. The company does not have to make the payment of legal fees and related costs. The insurance takes care of such things.
Individuals who occupy the high table as part of the board of directors or who are employed as officers of a corporation, whether for-profit or non-profit, can be exposed to personal liability as a result of their conduct in the course of their duties. For this reason, many companies – of all sizes obtain directors’ and officers’ liability insurance which is designed to protect these individuals from such liability.
The management liability insurance
This insurance has a more extensive scope when compared to the coverage of the typical D&O insurance policy. The management liability insurance, along with the subjects and entities covered by the D&O policy, also covers EPL insurance, fiduciary insurance, and special crime insurance.
The D&O policy does has restricted cover for EPLI
The full-form of EPLI is employment practices liability insurance. The D&O insurance policy does cover it but as an extension and restricted within the overall limit of liability under the D&O insurance policy. While D&O liability insurance provides liability protection for incidents/events that impact the directors of the company from people outside of a company, such as shareholders, customers or investors, employment practices liability insurance (EPLI) protects a company from claims filed by internal employees. An employee can sue a company if they believe the company has violated their legal rights.
Some of the reasons a person might sue their employer include:
- Workplace harassment
- Discrimination at work
- Wrongful termination
- Failure to promote
Let us understand a few cases where the EPLI incident triggered a claim under the D&O liability insurance policy:
Case: Firing of Employees:
Description: Dismissing of Senior Employees
- A MNC company had hired in 2001 two senior bankers and they were made to understand that they were to head the new subsidiary.
- The setting up of the subsidiary kept getting delayed which soured relationships between the employees and employer..
- The company in 2003 dismissed both of them citing incompetence and absenteeism as the reason.
- Both the dismissed employees filed criminal cases for damages of INR 80 crore against all the directors of the company alleging cheating, fraudulent misrepresentations about the job profile, remuneration, failing to fulfil terms of employment contract and defamation by press release.
A prolonged legal battle followed and the defense cost incurred by the directors was advanced to them.
Case: Wrongful termination Description: Employee Vs. Company
- An overseas company doing business in the United States was charged by one of its executives with reverse discrimination when he was terminated.
- The claimant was one of 12 executives working for this company, and the only non-Japanese executive.
- He was employed with the insured for over 10 years, during which time he compiled a 900-page diary of every meeting and event he was and was not invited to.
- In many instances, it was noted that executive meetings were conducted in Japanese (the claimant did not speak Japanese). In other instances when major decisions were being made, the claimant was not invited.
With insurer assistance, the suit was settled quickly for hundreds of thousands of dollars.
EPLI can be bought as a separate insurance policy or be an add-on to a D&O liability insurance policy.
The D&O policy does not cover fiduciary insurance
If a company is aiming to get a coverage particularly related to fiduciary insurance, then buying management liability insurance is more preferable. A D&O insurance policy does not consider paying expenses for fiduciary insurance. Its policy document does not include the matters of fiduciary insurance.
Understanding special crime insurance
It is essential to understand what special crime insurance is. It is the costs the insurance company has to bear in special situations of a kidnapping, ransom or extortion of key management personnel or any employee of the company. Such coverage is called special crime insurance.
The D&O policy does not have special crime insurance
It is important to take note that a typical D&O insurance policy will not have any provision to cover the costs of special crime. So, if the company is looking for such a policy, it is better to pay premium amounts for management liability insurance.
The company should be clear about what insurance needs
When you have the responsibility to recommend the insurance policy to the company, then you should be clear about the agenda and specific requirements of the business. The management should be aware of the goals it wants to meet, in terms of availing insurance.
Comparing the features of both insurance categories
It is wise to do a comparative analysis of various features of both these types of insurance policies, before making a final decision. A deep study helps in buying the suitable insurance policy.
When the needs only concern the directors/officers’ coverage
If the company determines the requirement is for the coverage of the legal expenses of the directors/officers in situations of lawsuits, then going for the D&O insurance policy is a wise step. It will perfectly address the issues in a planned way.
When the needs are more extensive
If the requirements of the company as far as corporate insurance is concerned are more extensive in nature, then it is better to buy management liability insurance policy. As said earlier, the policy has a more comprehensive scope compared to the typical D&O.
Check out the inclusions for the policy you buy
It is essential to carefully check out the inclusions that the policy promises to the client. Go through the policy document in details, and then decide. Read the clauses and sub-clauses. The inclusions tell you about the cases in which you will receive coverage.
Do not overlook the exclusions
It is equally important to go through the list of exclusions of the insurance policy you plan to purchase. The policy document will have a clear list of such exclusions. Exclusions mean the cases in which the insurer will not take care of the financial obligations.
Terms and conditions
There are specific terms and conditions attached to management liability insurance. When a company intends to purchase it, it is mandatory to select at least two applicable conditions. It is a usual offering from most of the insurers. On the other hand, there are no such terms and conditions when the company purchases D&O policy.
Availability to various companies
A crucial point to note is a management liability insurance policy is generally available for a company that is not-for-profit. A small publicly traded company can also buy the insurance policy. In the case of buying D&O insurance, there is more flexibility in this context.
Read the clauses before buying the insurance
It is important to read the different clauses regarding the applicability of the insurance in times of a financial crisis. As a person negotiating the deal, you will have a better understanding of the complete scenario, related to the insurance benefits.
Query about the policy
It is the right of any company, private, public or an NGO, to query about the corporate insurance policy it plans to purchase from a service provider. The business should ask relevant questions to the insurer about a wide range of aspects associated with the applicability of the policy.
Consult with a renowned expert
You can talk to PlanCover, an expert insurance broker in the Indian market, with goodwill among several small businesses operating in various locations. It perfectly caters to the specific insurance requirements of any business. Ask your questions to get rid of doubts. The agency addresses queries effectively and promptly.