Financial & Professional Liability

Every organization faces its own unique financial and professional liability risks, based on its industry type, size, workforce, and processes, but several are more common across the board.

An accelerating risk impacting the majority of industries, given the increasing reliance on rapidly evolving technology and digital data, is cybersecurity with destructive, high-profile breaches and attacks becoming a regular occurrence around the world. Many companies’ cybersecurity teams and business leaders are unable to keep ahead of emerging risks and must take a reactionary approach to dealing with crisis situations.

Other financial and professional liability risks range from white-collar crimes to everyday business and transactional errors, stock market volatility, failure to meet increasingly strict industry regulatory standards, and sexual harassment. Beyond these, there is also the very serious risk of employee kidnapping and ransom. The financial consequences of all of these risks can be addressed through a financial and professional liability insurance and risk management plan with the help of trusted advisors.

Organizations face many risks today that drive the need for financial and professional liability insurance and strategic risk management plans. These risks most often relate to data breaches and cybersecurity, intellectual property rights and patent infringement, global and local jurisdictional challenges, directors and officers decisions or conduct, professional services delivery, employment practices, and mergers and acquisitions. Without the appropriate insurance and risk management strategies in place, your company could face financial and reputational consequences that may be challenging to overcome.

Using our industry-leading, data-driven approach, our FINPRO specialists can help you assess and understand your risks. We will help you mitigate and manage your exposures so that you can make informed risk decisions and enhance your business resilience.

There are a number of financial and professional liability policies available that can be tailored to address your particular risks.

A common form of financial and professional liability insurance offers protection in situations of alleged professional negligence or errors and omissions (E&O). This is sometimes just referred to as E&O insurance. Most organizations retain some form of financial and professional liability insurance that meets this description.

Other financial and professional liability insurance that you might consider includes directors and officers (D&O) liability insurance and cybersecurity-related policies, as well as insurance that provides support in situations of kidnapping for ransom. Depending on the sector serviced by your company, there may be more specialized insurance options available.

When it comes to managing financial and professional liability risk, prevention should be your company’s primary focus. The first step involves identification and assessment of real and potential risks within your organization. This is best achieved through a combination of discussions with internal and external stakeholders, as well as consultation with experienced risk advisors, who may be able to assess the risks facing your company and identify risks that were not immediately obvious.

Once potential exposures are identified, it's a good idea to move forward with creating a formal risk management strategy. Your strategy should detail how various risks will be prevented or transferred and how the company will respond if they do occur.

Management liability insurance provides a variety of coverages centered on financial losses stemming from legal defense costs, judgments, or settlements from lawsuits. It encompasses directors and officers liability and employment practices liability (EPL or EPLI) insurance, but also covers fiduciary liability, crime, and kidnap and ransom. It is designed to help public, private, and nonprofit companies address the various legal risks that can arise from day-to-day management activities.

D&O insurance protects a company’s directors and officers when they are accused of wrongdoing in the performance of their management duties. D&O insurance becomes especially critical when a company is unable or refuses to indemnify its directors and officers, which typically happens in the context of derivative litigation or insolvency situations. D&O insurance protects the personal assets of those individual directors and officers when the company they serve is unwilling or unable to pay for their defense costs and any settlements or judgments for which they are responsible.

When being acquired, D&O liability, employment practices liability (EPL or EPLI), fiduciary, cyber, and E&O insurance may be affected. However, all policies in force should be reviewed to determine if they should be continued, increased, or cancelled depending on your specific acquisition situation.

When your company is considering spinning off a subsidiary into a new and distinct public company, you must evaluate two significant categories of financial and professional liability insurance: 1) coverage for claims based upon alleged wrongful acts before the spinoff; and 2) coverage for alleged wrongful acts after the spinoff. Coverage should be tailored to follow the liability provisions of the transaction agreement. Additionally, other coverages may be necessary for the new entity to protect itself on a go-forward basis, like employment practices, fiduciary, crime, and kidnap and ransom.

A fiduciary is someone who manages investments, such as a pension fund manager. Fiduciary liability insurance protects the personal assets of those fiduciaries and trustees from defense cost and penalties if they are sued for decisions they make on behalf of an employee benefit plan or other investors.

Employment practices liability insurance – also known as EPL or EPLI – is designed to respond to claims alleging sexual harassment, discrimination, retaliation, and other employment-related wrongful acts. These are potentially among a business's most damaging exposures and are commanding ever-higher damage awards in US courts and other jurisdictions. EPL lawsuits can result not only in financial harm, but irreparable harm to an organization's reputation.

EPL claims are among the most common claims against companies and can be made on behalf of an individual claimant or a class of individuals. Employment decisions surrounding COVID-19 layoffs and the return to work have heightened the risks companies face in this area.

An often overlooked liability exposure in business is errors and omissions (E&O). By definition, E&O is an actual or alleged act, error or omission, misstatement, misleading statement, or breach of fiduciary duty or other duty committed when providing or failing to provide professional services.

You will likely want to consider errors and omissions insurance if you:

• Provide a service for a fee, especially in technology.
• Provide installation, integration, support, maintenance, or related services.
• Manufacture, distribute, or sell computer software, hardware, telecommunications products, and/or components.
• Develop, publish, broadcast, or distribute content (whether or not you charge for it).