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Executive Liability Insurance – Why Private Companies Need It


Private companies usually have two levels of management. These are the top management, which comprises the CEO and the board, and the lower to mid-level management, comprising various managers, supervisors, and heads of different sections. The directors and officers overseeing the operations of a company can make decisions that can cause injury to third parties. While the affected parties can file a suit against the company, there is also the option of suing the top executives individually for their decisions.

This is because some decisions may contribute directly to the injuries, so both the company and its executives can be sued. It is possible to sue executives in their capacity, especially if a person can prove that the actions of the executive were not in the interest of the company. Smart Business Insurance offers executive liability insurance to protect directors and senior officers working for private companies against claims of liability.

The Importance of Executive Liability Insurance

This type of cover is designed to protect business executives and other top managers in private companies against claims of mismanagement. It helps to ensure that top executives can afford to mount a potent legal defense and pay the damages in case they are not successful in fighting the mismanagement lawsuit. The policy will protect the assets of the company as well as those of the top executives from the cost of lawsuits. It can prevent an executive from filing for bankruptcy to avoid the costs associated with a mismanagement lawsuit. Different insurance companies offer different types of executive liability coverage, so you need to keep this in mind when making your decisions. Business owners must consult the experts in the industry, assess their coverage needs, and purchase a more suitable management or executive liability insurance.

Factors to Consider

i) Liability Coverage

The ideal executive liability insurance policy should protect all the managers and senior executives. Any member of staff who is in a managerial position should be covered. You must check the types of managers covered by a policy before making a purchase because you want everyone holding a managerial or administrative position at the company to be sufficiently covered.

ii) Coverage Limits

The level of liability coverage should increase upwards. This is because low-level managers are usually answerable to top managers and senior executives. Therefore, every manager should have a level of coverage that is commensurate with the responsibilities of their offices. You must study previous mismanagement lawsuits to learn about some of the damages awarded as well as the legal fees charged by lawyers during those cases. This analysis will provide you with a good idea of the amount of liability coverage you should purchase. It is better if you have more liability coverage than you can use than having insufficient liability coverage. This is because insufficient coverage may force the intended beneficiaries to use their life savings to bridge the coverage gap when they lose a mismanagement lawsuit.

iii) Premiums

Insurers usually consider a wide range of factors when calculating premiums. For instance, they usually consider the history of the company. If a company has previously had numerous mismanagement lawsuits, the premiums will be higher because the company will expose the insurer to unnecessary risks. The nature of business a company is involved in will also affect premiums. You must keep this in mind when comparing insurance policies. Since there is intense competition in the industry, you can shop around to identify insurers with the most competitive premiums. That said premiums should be considered only after all other factors have been looked into.

iv) Exclusion Clauses

An insurance policy may purport to offer the best coverage when you read the inclusion clauses. This section usually lists in great detail all the liabilities that are covered. Unfortunately, many consumers usually stop there. Ideally, consumers should also read the exclusion clauses to learn about the liabilities that are not covered as well as the circumstances under which some covered liabilities will not be covered. The exclusion clauses will tell you whether or not a policy is worth purchasing or not. That is why these clauses should never be overlooked.

v) Legal Defense

It is important to note that when a mismanagement claim has been filed, the private company and its executives will be protected by executive liability insurance. The insurer has a lot to lose if they fail to fight the suit successfully. That is why insurance companies usually hire the best lawyers to handle these cases. The cost of the legal defense will be transferred directly to the insurer. Many insurance companies have a team of in-house defense lawyers who handle these cases. Whatever the approach taken by the insurer in defending the client, no cost will be transferred to the executives in question or the company. In addition to that, the insurance company will pay all damages that may be awarded by the court if the case is lost.

The Importance of Consulting a Broker

Insurance brokerage companies have experts in both business and insurance. These experts can assess your coverage needs and advise you on the most suitable type of insurance coverage to purchase. They can also advise you on the extent of liability coverage you should carry. More importantly, however, these brokers can shop around and compare the products offered by different insurance firms to help you choose an insurance policy that is going to give you great value for your money.

There is a common saying that to err is human. Since senior managers and top executives are human, they are likely to make mistakes when discharging their duties. These mistakes should not come back to haunt them. To prevent this from happening, business owners should make it their policy to purchase the best executive professional liability insurance. In addition to protecting the assets of the company and senior managers, the policy will also help with brand reputation management. After all, a senior manager who has to declare bankruptcy because they are unable to pay the cost of a mismanagement lawsuit is bad press for the company.

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