Key takeaways
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Corporate Legal Liability (CLL) is insurance designed to protect the company itself, rather than for its individual directors and officers
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The cover is available to privately owned companies under a D&O insurance policy, also known as Management Liability Insurance
What is Corporate Legal Liability (CLL) cover?
Traditionally, D&O insurance was designed to protect individuals who serve as directors, officers, or senior managers who can be held personally liable for the decisions they make on behalf of the company. However, litigation or regulatory investigations in the real may not name an individual - which means your traditional D&O Insurance could not offer protection.
CLL cover, also known as “Entity Cover” or “Side C cover bridges the gap and allows for allegations to name the company itself to trigger a claim under the policy. For example, companies can be named in regulatory investigations, shareholder disputes, employment practices claim, or other legal disputes - for which there is no other insurance protection available.
Please note the intention is not to provide blanket protection to company for which other insurance protection should be available, but rather cover allegations or investigations which you would expect your Directors and Officers Insurance to provide protection.
How does CLL coverage work?
Most D&O policies will have separate insuring clauses:
- Side A - protects individual directors and officers when the company cannot indemnify them
- Side B - reimburses the company for indemnifying its directors/officers
- Side C - (or CLL) provides cover to the company (legal entity) itself
CLL will typically provide for legal defence costs, investigation costs by a regulatory body, and any awards, judgements, or settlements.
The definition of a wrongful act under CLL 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.
CLL will contain a number of exclusions and potentially sub-limit of cover. Fraud, deliberate conduct, bodily injury, property damage, pollution, and contractual liability is commonly excluded. A select few insurers for a higher premium will still provide defence cost cover for contractual disputes with clients, which is usually capped at £50k.
CLL 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.
Unlike the D&O Section which provides cover to the individuals, the CLL will contain a deductible or excess which means the company will be responsible to pay for the first part of the claim.
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 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.
Employment practices claims
If an allegation names a director or officer, then Side A or B can respond to the allegation - however in the majotrity of cases the employment dispute, such as discrimination, wrongful termination, or harassment, will name the company itself. Please note that
employment practices liability insurance is nearly always provided as an additional option to CLL with it's own sub-limit. Employment practices liability cover will typically start at £350 - £400 annually for less than 10 employees for a limit of £100,000.
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. CLL can provide financial protection for defence costs against a prosecution.
Important to remember
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.
