Corporate legal liability insurance refers to the coverage section under a management liability insurance policy. The coverage provides protection to the company which is a separate legal entity to the insured persons, such as the directors, officers, or senior management.
Directors and officers insurance and corporate legal liability
Directors and officers insurance was traditionally designed to protect individuals who serve as directors, officers, or senior managers. However, circumstances can arise whereby these individuals are not named in an allegation and agrieved party is seeking damages from the company or a regulator choose the company to investigate. Insurance policies for private companies will commonly contain a separate insuring clause called Corporate Legal Liability, or Entity Coverage, which offers protection for wrongful acts made by the company and not the individuals.
Management liability insurance and corporate legal liability
Management liability insurance is an interchangeable term with D&O insurance when talking about privately owned companies, not listed on an exchange. Management liability coverage will commonly include coverage for both the individuals (under D&O insurance) and the company itself (under Corporate Legal Liability). The coverage is a natural extension under a management liability insurance policy because it will provide protection to the same types of wrongful acts.
Corporate legal liability insurance
Corporate legal liability coverage under a management liability insurance policy will typically provide for legal defence costs, investigation costs by a regulatory body, and any awards, judgements, or settlements.
Wrongful act
The definition of a wrongful act under Corporate Legal Liability is typically very broad - for example: any wrongful act or omission, error, misstatement, misleading statement, neglect, or breach of duty or breach of trust; or a formal investigation or enquiry into the conduct of the company by a regulatory authority.
Regulator investigations
The Health and Safety Executive, HMRC, Financial Conduct Authority, Environment Agency, and Prudential Regulatory Authority are just a few regulators that can bring prosecutions and potentially fine the company. Corporate legal liability coverage will typically provide for reasonable legal representation fees and related professional charges which the company incurs in its representation at a regulator investigation, defence costs, and insurable fines which are non-criminal.
Corporate manslaughter
The Corporate Manslaughter and Corporate Homicide Act 2007 in the UK introduced a new offense of corporate manslaughter. This law holds companies aaccountable for gross corporate failures leading to a person's death and will be investigated by the Crown Prosecution Service. If a company is found guilty of corporate manslaughter act, it may face significant fines. Corporate Legal Liability coverage can provide financial protection for defence costs against a prosecution.
Difference in coverage
Corporate Liability Insurance typically include a number of exclusions and sub-limits to the cover. We recommend you read these because there are some differenes in coverage offered in the insurance market. For example, a useful coverage provided under the Corporate Legal Liability section is protection for Contractual Defence Costs - i.e. disputes with your customers - which is typically sub-limited.
Deductible
Unlike the D&O Section which provides cover to the individuals, the Corporate Legal Liability Insurance will contain a deductible or excess which means the company will be responsible to pay for the first part of the claim.
Claims made
Corporate Legal Liability is provided on a claims-made basis. This means that claims are only covered if they are made while the policy is in effect or within a contractually agreed extended reporting period, irrespective of when the event giving rise to the claim occurred.
Employment Practices Liability
Directors personal liability
There are a number of statute laws and legislation which means directors have a personal legal liability when making decision on behalf of the company. However, for many privately owned companies the directors will also own the business. Therefore, a claim or investigation made against the company has a direct financial impact upon the directors.
About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.