Management Liability Insurance

Insurance from Rowlands & Hames.

Management Liability

The Directors and Officers (including the Senior Employees if they can bind the company) of all companies are now held, at an unprecedented level, to be personally and financially responsible for any actions and decisions they make on behalf of the company with unlimited liability – putting their personal assets at risk if those decisions are tested in the courts.

The multitude of duties and obligations of UK directors and officers is well known; and the legislation and regulation with which they have to contend increases daily. Directors and Officers face significant scrutiny of their actions by fellow directors, employees and shareholders.

Even if a claim brought against a director proves unfounded, defence costs and expert legal advice alone can be financially damaging.

Management Liability Insurance covers the personal assets and liability of past, present and future directors, officers and senior management against claims arising from wrongful acts or decisions made in their capacity as leaders and decision makers.

The duties imposed on Directors and Officers are numerous –

Common Law Duties

  • Legal principles established from hundreds of years of case law.

Fiduciary Duties

  • To act Honestly
  • To act in Good Faith
  • To act in the best interests of the company at all times
  • Not allowing personal interest to conflict with that of the company

Duties of Skill & Care

  • Directors are the mind and will of the company. They are the driving force behind the company and are responsible for their own actions.
  • Duty to exercise the same level of care that an ordinary man would use in the management of his own affairs.
  • Duty to exercise the skill expected from a man with his knowledge and experience.

Statutory Duties

    • Where an offence under an Act is committed by a Company with the consent or connivance of a director, or is attributable to his neglect, that director is also guilty of the same criminal offence and can be punished accordingly.

More specifically, directors face the threat of personal liability from actions/allegations as a result of –

  • Breach of fiduciary duty: directors have an obligation not to permit their personal interests to conflict with those of the company and to act in the company’s best interests. Problem areas include secret profits, unauthorised payments, and loans to directors.
  • Wrongful trading: directors may be personally liable to contribute to the assets of a company in insolvent liquidation if they allow the company to continue trading when at any time before the commencement of the winding-up they knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into liquidation, worsening the position of creditors.
  • Employment disputes: claims against directors by employees alleging wrongful dismissal, sexual, racial or disability discrimination etc.
  • Disqualificaton proceedings: defence of a director in an action which might lead to them being disqualified as a director of a company from 2 – 15 years.
  • Infringement of intellectual property rights: claims arising from infringement of patents, trademarks or copyright etc.
  • Libel and slander: this can apply particularly during hostile take-over battles; if a director makes a statement in relation to the situation.
  • Breach of trust: disclosure of information without consent
  • Breach of warranty of authority: making loans without security or acting in any way outside their powers as directors
  • Breach of contract: customers suing an individual director for breach of contract caused by them
  • Breach of statutory duty: provisions contained in, for example, the Companies Act 1985 and 1989, Insolvency Act 1986, Data Protection Act 1984, Health & Safety at Work Act 1974, Environment protection Act 1990.
  • Breach of EU directives
  • Mis-statement/misleading statement: causing loss to a third party who relies upon the accuracy of that information
  • Failure to exercise reasonable skill and care: in carrying out the duties of a director
  • Mismanagement: shareholders may bring an action, alleging the value of their shares has been adversely affected
  • or any other act wrongfully committed or attempted by a drector or officer in the course of performing the duties of that office.

With increasingly powerful and active stakeholders, numerous risks associated with global expansion and stricter corporate governance standards, today’s directors and officers face a far greater likelihood of being personally sued or investigated by the following –

  • Competitors: breach of trade practices, anti-trust allegations
  • Creditors: wrongful / fraudulent trading
  • Employees: wrongful termination of employment, discrimination, health & safety issues
  • Government & Regulators: breach of regulations, tax issues, industry standards
  • Liquidators/Receivers: claims arising from the insolvency of a company frequently brought on behalf of creditors.
  • Purchasers: allegations of misrepresentation regarding existing and future valuations of the company.
  • Shareholders: allegations of mismanagement which adversely affects the value of their investment in the company

What cover is available?

A standard Management Liability Insurance covers losses arising from claims brought against directors and officers for “wrongful acts” committed in the performance of their duties to ensure that their personal wealth is protected. Policies generally include cover for:

  • “Wrongful Acts”: Breaches of duty or trust, neglect, error, misstatement, misleading statements, omission, negligent act or any other act wrongfully committed.
  • Defense costs: paid as the action proceeds, to ensure that individuals do not have to fund their own defense
  • Damages, judgement or settlement sums: awarded against the director or officer including exemplary damages for Libel and Slander (Fines and damages uninsurable under law and con-compensatory damages are not included).
  • Company Reimbursement: Company is reimbursed if it provides an indemnity to its director or officer
    Investigation legal fees and expenses: pays the legal fees and expenses involved in defending official investigation / examination into the affairs of the company even if there is no alleged wrongdoing on behalf of the directors and officers.
  • Blanket cover: provides cover for any person deemed to be a director or officer, past, present and future.
  • Managerial/Supervisory staff
  • Further useful information

Who is covered?

Types of Director

  • Executive: full time and hands on
  • Non Executive: may be part time, may have more than one board appointment, may have particular expertise or experience
  • Shadow: not appointed as Director, someone in accordance with whose directions or instructions the directors or officers of a company are accustomed to act

Types of Officer

  • Company Secretary
  • Other persons who manage the affairs of a company and who are able to bind the company as a whole.

Claim examples

See the list of claim examples at the end of this guidance note.

Corporate / Entity Liability

There are occasions when an action is brought against the Company rather than an individual. In these circumstances standard D&O policies would not respond.

Entity Defence provides cover for the ‘Entity’ (the Company) in respect of specific situations, which arise in the United Kingdom, and are particularly relevant for businesses of this type.

The Entity’s legal costs and expenses relating to:

Identity Fraud
Covers the entity’s legal costs and expenses in establishing that someone (other than a director, officer or employee) has fraudulently entered into an agreement with a third party by representing themselves as the entity. Provided the misrepresentation is in connection with the entity’s business and is made within the United Kingdom.


Cover’s the entity’s legal costs and expenses in respect of an official investigation within the United Kingdom

Corporate Manslaughter
Covers the entity’s legal costs and expenses in defending a prosecution brought under the Corporate Manslaughter and Corporate Homicide Act 2007

Breach of Contract
Covers the entity’s legal costs and expenses in defending a claim within the United Kingdom alleging breach of contract for goods or services provided.

Covers the entity’s legal costs and expenses in defending a claim within the United Kingdom alleging that a director, officer or employee has committed a wrongful act which results in pollution.

Taxation (not all Entity policies)
Covers the legal costs and expenses in our negotiating on behalf of the entity following a tax investigation (including PAYE and VAT) by HM Revenue and Customs and/or in an appeal.

Data Protection
Covers the entity’s legal costs and expenses in defending a claim following a breach or alleged breach of the Data Protection Act and/or in an appeal.

Examples of Management Liability Claims


Under the “wrongful trading” provisions it is possible for a director to be held personally liable for some, or all, of a company’s debt. There are numerous actions arising from such situation and the legal defence costs provided by a D&O policy is of particular importance. Where directors are subsequently found guilty of “wrongful trading” any judgment awarded may be the subject of indemnity by the D&O policy.

A Company went into liquidation shortly after one of its directors ran up a bill with a vehicle repairer for the cost of repairs carried out to a company vehicle. The costs were incurred on behalf of the company. The vehicle repairer brought an action for the outstanding invoices and there was a suggestion that the director was liable personally in view of the provisions of the Insolvency Act.

Shipping agents were required to hold all goods held on behalf of the claimant in a separate account, but following their liquidation, it was discovered that this was not the case, and the claimants would have to recover their goods as a normal creditor. Directors sued for £ 61,000.

A Director who signed a company cheque whilst the company was in receivership, found that the cheque was dishonoured and he was held personally liable to the payee.

An affidavit given by a director contained a statement that the company had insufficient resources to meet a solicitors’ fee in respect of an action being brought against the company. Before the fee was paid, the company went into liquidation. The solicitors sought £ 300,000 directly from the director.

A creditor brought a claim against the former director of an insolvent tool manufacturing company alleging misrepresentation in statements about payments.

A director made a speech at a conference stating that his company was making a bid for another company and that his company’s merchant bankers had disclosed details of the bid to another bidding company. A claim was brought by the bankers refuting that they had acted as described.

A bank has taken action against the directors of a retail company for failure to disclose material facts when they entered into a financing agreement worth £8.5m with the bank. The projected cash flow for the subsidiary showed the loan was un-sustainable. The bank accused the directors of providing misleading information.

Engineering manufacturers entered into a factoring agreement with the claimant, but following the company going into administration, alleged that they used the monies due to the claimant to pay other creditors. A Director was personally sued for £ 300,000.


A former director of a company was sued for alleged misappropriation of trade secrets, which he obtained from the company.

A company sued the directors of one of its competitors for allegedly breaching trade practices.


Directors of a construction company were successfully sued for losses incurred by an architect who relied on a director’s repeated assurances that a contract performance bond had been arranged.

A director who accepted an order at a trade fair but couldn’t recollect the details the following morning found himself being sued by his customer for breach of contract.

Director of a property owning company breached his authority in appointing a company belonging to an employee to undertake work on their behalf. Proceedings issued by the claimant for non-payment of fees of £ 42,000 following cancellation of the contract.


Director of a glazing manufacturers named personally in an unfair dismissal claim form a former employee. Costs incurred of £ 14,055 in defending the director.

An action for breach of trust was brought against a director following the release of an employee’s medical records.

A director’s service agreement was terminated by his employers (the insured) after alleging sexual harassment. The director successfully sued the company for wrongful dismissal and libel.

An employee is seeking damages of between £ 200,000 and £ 250,000 for an alleged error in a notice of termination of service agreement.

A director found himself personally defending an action, brought under sex discrimination legislation, following the dismissal of a pregnant employee.

Claim for unfair and constructive dismissal against the Finance Director of a distribution company by a former employee alleging sexual harassment and other inappropriate activity (sending text messages out of working hours, inviting her on nights out etc). Costs £ 21,000


HSE prosecution following serious injuries suffered by a machine operator in clearing a blockage in a stamping machine. There should have been a safety cut out stopping the machine operating with the access panel open, but this had been broken or disconnected. Defence costs incurred of £ 25,700,

Transport manager of a waste management company prosecuted by the Crown Prosecution Service following an accident involving an unroadworthy vehicle operated by the company. Claims reserve £ 15,000

Directors of a clothing manufacturers facing disqualification proceedings issued by the Secretary of State for trading whilst insolvent, together with allegations that they failed to maintain their accounts in a satisfactory manner to enable the receivers to carry out their duties, leaving many creditors (including HM Customs and Excise) unpaid. £ 56,000 paid in defending the directors named in the proceedings.

The Food Standards Authority brought an action against a meat wholesaler alleging wrong and misleading labelling.

Action taken against the directors of a glass manufacturing company by Trading Standards following allegations of pre-stamping of safety glass before it had passed the necessary testing procedure. Costs incurred £ 25,718

A director was prosecuted in Europe for claiming an exports subsidy on meat, which was allegedly being exported to South Africa. The meat, in fact, was being exported elsewhere where no subsidy was available.

The manager of a bank, which operated a discretionary currency portfolio, started to roll forward unprofitable deals, which then “closed” and lost the bank in excess of £ 21m. The Bank of England threatened to take away the bank’s licence and disciplinary proceedings commenced against the directors. The disciplinary body has the power to debar the directors from holding office within the banking field. Legal costs, estimated to be a six-figure sum were incurred in representing directors before the disciplinary body of the Bank of England.

The Company Secretary (as licensee) for all the bars owned by a leisure group was prosecuted as an individual for short measures being served at one of the bars.

The directors of a company, which failed to comply with the time limit for delivery of accounts to the Registrar of Companies and then did not disclose certain directors’ appointments, were prosecuted under the Companies Acts.

Directors were prosecuted after their failure to identify the company correctly on the company’s notepaper and invoices in breach of the Companies Act.

The chairman of a company was investigated by FIMBRA for employing someone of “dubious character” and the failing to exercise proper control over him. He was acquitted and is now seeking costs for his defence from FIMBRA.

The bar staff of a company were allegedly paid without deductions for tax (apparently without the knowledge of the directors). The Inland Revenue considered bringing proceedings against the directors.

The Crown Prosecution Service brought an action against a scaffolding company under the provisions Corporate Manslaughter & Corporate Homicide Act alleging a failure to implement an effective induction and supervisory programme had led to an employee falling to his death. The directors of the company were also prosecuted under

Health & Safety legislation.

An action was bought against the former directors of a failed flooring company by the liquidator alleging a breach of duty. They alleged the directors should not have permitted a buyback of shares totalling £ 75,000.

Action against directors of a manufacturing company by the Health and Safety Executive following their refusal to respond to a notice to control dust emissions. Directors responsible had failed to adhere to deadlines so action taken against both the company and the directors responsible. Incurred over £ 110,000 in defence costs, with a further
£ 60,000 outstanding.


Two directors of a company, which was in liquidation, with a total deficit of £ 216,000, were held jointly liable for £ 75,000 damages (plus interest and costs) arising from wrongful trading whilst the company was insolvent.

Purchasing Companies

A Manchester based clothing manufacturer sought £ 12m in damages against five former directors of a company they purchased in 1987 alleging they were mislead as to the value of that company.

A company had issued proceedings against two directors of a company it acquired. It is alleged that the former directors made negligent misstatements and misrepresentations to the purchasers and substantial damages are pleaded as a result.

Company A invested in Company B relying upon a statement of working capital that Company B made to its shareholders. Company B has subsequently gone into liquidation and the shares, which cost £ 175,000, were now worthless. Company A contended that the statement was misleading and brought an action against B’s directors.

A company’s directors made financial representations to identified bidders for their company, aware that and intending that bidders would rely on these, as they did. The Court of Appeal held that if the representations were proven negligent, the directors (and others) would be liable for this breach of their duty and care. Negligence was never established as the matter was settled out of court. Significant defence costs were however paid on behalf of the directors.


A new shareholder purchased shares in a company even though the Report and Accounts showed the company to be making losses. Subsequently discovered that financial problems were much worse than the Report & Accounts indicated.

A dairy company faced an action following the breakdown of negotiations into its sale. The proceedings alleged that there had been a breach of warranty by the company and its directors. Damages were sought for wasted management time and loss of profits.

Shareholders brought an action for mis-management against the directors of a company which had suffered exceptional losses. The directors were able to successfully defend themselves but sizeable legal costs were incurred.

Shareholders claimed for losses they incurred due to the premature sale of shares following allegedly misleading statements by the directors.

Six shareholders claims misrepresentation by the directors of a company regarding the state of affairs of a subsidiary and the support the company would receive from its bank. The shareholders claimed that their preference shares could not be redeemed as a result.

A Company breached its articles of association by payment of dividends out of capital profits opening itself up to potential claims from shareholders.

A company held board meetings without the necessary quorum.

Information contained in a prospectus

A minority shareholder brought an action against the directors of a building company alleging breach of fiduciary duty. He alleged a proposal to issue new shares, needed to support development, had been to his financial detriment.


Contractual dispute following appointment of a website developer to design an online trading website for a giftware manufacturer. The director concerned was not authorized to enter into the contract and the company cancelled the agreement. Website developers claimed against the director for their costs incurred to date of £ 48,000

Pension Administration (only limited Insurers include Pension Administration)
A construction company faced a claim from the partner of a former employee following his death. She alleged they had been negligent in failing to update his pension records with her being named as main beneficiary.

A clothing manufacturer faced a claim from a retired employee alleging they had incorrectly allocated his pension investments resulting in a lower return than expected.

Other Third Parties

Two directors signed a confidentiality agreement for receipt of papers from a company that was potentially the target of a bid by a third party. The papers were allegedly released and the target company intimated that the sale price was affected.

After a disaster at sea a director accused a firm of solicitors of “ambulance chasing” at a press conference. The solicitors brought an action for defamation and defence costs were paid.

A company, which had been the subject of a take-over bid, had a disappointing first year’s trading. The purchase price for the company contained a performance adjustment clause. However, an oversight in drafting the contract meant that price could not be adjusted. The Board sued the solicitors. The solicitors counter claimed against the two directors who had signed the contract.

Other Management Liability Covers available

Employment Practices Liability – Protects companies against Employment Related claims

Fidelity/Crime – Protects companies from theft/fraud by employees

Cyber & Internet / Email Liability – Protects companies from legal actions emanating from their email, website and online sales activities.

Pension Trustee Liability – a form of D&O cover for Pension Trustees

Charity Trustee Liability – a form of D&O cover for Charity Trustees

Residential Property Management Liability – a form of D&O cover for Residential Management Companies

Useful Links

The following guides have been produced by the Ministry of Justice to help guide you through the chances being brought about by the Bribery Act 2010 which came into effect on July 1st 2011.

Bribery Act 2010 – Quick Guide
Bribery Act 2010 – Guidance


Contact Rowlands & Hames for a Management Liability Insurance Quotation – Premiums start from as low as £250 plus tax.