Why your key decision makers need a Management Liability Policy
Imagine you are a trustee of a growing charity dedicated to supporting vulnerable communities. Your charity has just secured a substantial grant from the government and excitement is high as you discuss plans to expand your services and launch new outreach initiatives. Initially, the CEO of your charity seemed like the perfect fit, but suddenly they are making questionable decisions regarding the use of this funding.
They insist you sign a lucrative contract with a marketing agency owned by their close relative. Despite their costs being much higher than competitors, the CEO insists this is the right choice.
As time passes, it becomes clear that the agency’s service is unsuitable for your charity, draining a significant portion of your funding with ineffective campaigns.
Your employees become increasingly frustrated as your core services are affected, leaving vulnerable people within the communities without the support they have come to depend on. Your board of trustees decides to take legal action against the CEO.
Upon further investigation, it becomes clear that the marketing agency significantly overcharged for its services. Additionally, the CEO benefited personally from these funds, as a portion was redirected back into their personal account under the reference 'consultancy fees.' Your CEO was prioritising their personal gain over the needs of the charity, making decisions that put the future of the charity in jeopardy.
After this evidence comes to light, the CEO is not only removed from their position at the charity but is also sued for breach of fiduciary duty. This has significant legal, professional, and personal repercussions for them, including the requirement to compensate the charity for financial damages. The lawsuit severely tarnishes the CEO’s reputation, making it much more challenging for them to secure similar roles in the future.
Why do you need a Management Liability Policy (MLP)
As a reputable and honest senior leader, it can be hard to put yourself in the position of others who have found themselves amid a work-related liability case. Yet, these types of cases arise more frequently than you think. It's important to understand that if you are a key decision-maker in a charity, you share equal responsibility and liability for every decision made by other key leaders within that charity.
While you may have complete faith in your management and board of trustees, it only takes one negligent decision to impact everyone else in a decision-making role. If a senior leader/trustee has been found guilty of wrongdoing, you may also suffer legal and financial repercussions.
What is a Management Liability Policy?
Management Liability insurance is there to help protect your senior management should they face legal action resulting from potential wrongdoing. This may include damages, legal costs, coverage for breach of duty, and more. The costs of defending yourself in court can quickly mount up, so this cover is vital in ensuring that your key decision-makers don’t have to pay the expenses out of their own pocket. Although not always guaranteed, the policy should be able to cover these expenses. Businesses, churches and charities can quickly lose senior staff, who would not feel comfortable in the role of a key decision-maker without a financial and legal safety net.
Management Liability typically covers three key areas of protection for senior management including Directors and Officers cover (D&O), Employment Practices Liability and Company Legal Liability. You can also opt for standalone covers including D&O and Trustees Indemnity cover.
At Edwards Insurance Brokers, we will work with your not-for-profit organisation to find the policy that is right for you. To arrange a no-obligation chat, call our friendly team on 01564 730900 to discuss your requirements, and allow us to answer any other questions you may have.