Times are changing, and so are the ways in which law firms manage their businesses. Geographic expansion, mergers and acquisitions, new practice areas, and organic growth, as well as the need to be both proactive and reactive to competitive pressures within the legal industry, have led many law firms to become more mobile and emulate a more corporate-like governance. One of the consequences has been an upswing in the number of management liability claims.
In response to these emerging exposures, the insurance market has developed management liability insurance coverage to protect professional firms and their managers. This coverage is a variation of the more widely known directors and officers liability insurance, modified and tailored to provide specialized coverage for the day-to-day management decisions that expose law firm partners and shareholders to many of the same liability risks faced by the directors and officers in corporate settings.
Management liability insurance is designed to cover such claims as:
- mismanagement or negligence in the day-to-day business decisions made by the firm’s management committee or executive officers (for example, excessive borrowings/expenditures, unreasonable lease terms, questionable lateral hiring, and closure of unsuccessful branch offices);
- partnership agreements or compensation disputes;
- interference with contractual relations;
- allegations by partners not involved in the firm’s management (for example, partner-versus-partner claims);
- charges of predatory hiring and similar issues; and
- merger and acquisition disputes (for example, increased capital expenditures, poor results, increased conflicts, and claims of misuse of confidential information received during the discussions).