Confused? You haven’t seen “Sharknado.” Put it this way, a more literal use of the right liability policy is the ability to protect companies and their management from more likely happenings, such as employment practices liability claims.
Employment practices claims are one of the most frequent types of claims brought against private companies that fall under a typical private company management liability (PML) policy. These are claims made by employees who allege, for instance, that an employer engaged in discrimination based on gender, race, sexual orientation, religion, disability or national origin. Other types of employment practices claims are retaliation, wrongful termination and sexual harassment. Additionally, PML policies may provide coverage for claims that are made by non-employed third parties, such as customers and vendors.
In addition to employment practices liability insurance, PML policies usually contain directors & officers insurance. This coverage serves in part to protect the personal assets of D&Os, and provides coverage for wrongful acts, as defined by the policy, which can be a relatively broad type of coverage.
D&O insurance may cover shareholder suits alleging inadequate or inaccurate financial disclosures, negligent action or inaction by the board, and breach of fiduciary duties. Claims also may arise if a private company decides to swim with a shark and merge with a special purpose acquisition company (SPAC). SPACs are shell companies that seek private companies looking to go public and have been the scuttlebutt of the financial world given their recent uptick.
PML policies also could contain fiduciary liability coverage, which covers many of the aforementioned claims against fiduciaries of employee benefit plans, pension benefit plans and welfare benefit plans.
PML policies often are claims-made and reported policies. This means that coverage is triggered when a claim is made and reported during a specified time period. Agents must make sure that clients understand the policy’s definition of claim and the reporting requirements. This is particularly important with EPLI claims, which may originate from an administrative charge filed with the Equal Employment Opportunity Commission or a state equivalent. Such a charge may constitute a claim under the policy.
Traditionally, PML policies are duty-to-defend policies. This means that if your clients get sued on a covered claim, then the insurance company will secure defense counsel for them. Having the right defense counsel is crucial to defending a claim. Getting an early assessment of your client’s exposure from legal counsel is an important part of the defense process. Therefore, an insurance company with experience in providing panel counsel surrounding EPLI, D&O and fiduciary liability claims can further benefit your client.
In addition, PML policies may have policy enhancements. For instance, crisis event expense coverage is a type of first-party coverage that may come into play where there is a public announcement of certain events, such as a layoff of your client’s employees, a cyberattack against your client, or your client’s intent to file bankruptcy.
An immigration practices enhancement, which provides a defense costs sublimit for certain types of alleged immigration violations, is another enhancement that is offered in the market. A wage and hour sublimit for defense costs is another possible add-on because those costs often are not covered by a PML policy.
As a bonus feature, some insurance companies offer their insureds the use of a hotline. This allows your clients to engage in confidential communications with experienced defense counsel and receive general legal advice about human resources and employment issues before a sharknado is in the forecast—or before a claim is made—without incurring additional costs. This is in addition to when a claim is made when you and your clients will work with your insurance carrier’s claims professionals, who will provide support and guidance during the claim process.
PML policies and the risks they entail are often complex and require specialized knowledge. Are your clients ready for the biggest event of all: a private company sharknado? If not, that twister could take you along with the
Steve White is vice president and claims manager of the Swiss Re Corporate Solutions Executive Risk Claims team in New York. Diana Karnes is vice president and claims expert of the Swiss Re Corporate Solutions Executive Risk Claims team in Illinois.
Swiss Re issues both private and public company executive management policies at the primary and excess levels, and has an experienced, dedicated team of underwriters and claim handlers. For additional information regarding Swiss Re Corporate Solutions and its coverage for executive risks, go to corporatesolutions.swissre.com/insurance-solutions/financial-professional-liability and select Executive Risks.