According to the UK’s Ministry of Justice, there were 460,000 County Court claims lodged in July to September 2024. Of these, 408,000 (89%) were money and damages claims (up 2% from July to September 2023). These are relatively small cases – typically up to £100,000 in damages, but if the early signs are right (no 2024 year-end figures are available yet), the Commercial Court of England & Wales, which hears large and/or complex commercial cases, is also seeing increased volumes. Non-money claim volumes were at 52,000, up 5% when compared to the same quarter in 2023. For instance, there were 680 applications for Judicial Review in Q3 2024, up 2% on Q3 2023.

 

Against that background, if you’re a D&O broker or underwriter you would have had to have been living in a cave not to have come across Corporate Legal Liability (“CLL”) insurance in 2024.

 

I have been seeing it as part of multi-line management liability products and also as an addition to D&O policies, mostly in the SME / non-public company space. It is part of the management liability suite of products for businesses offered by the D&O market (D&O, Employment Practices’ Liability (“EPL”), Pension Trustee Liability (“PTL”), and Commercial Crime being others). Commercial D&O underwriters and brokers will find themselves dealing with these products, CLL included, at some stage.

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As far as I am aware, it is not generally offered on its own: there has to be a D&O product bought alongside it.

 

Whilst Cyber is also a significant related purchase for companies, it is offered by the Cyber market and so is generally kept separate from the management liability suite, although there are nuances (see further comments below).

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What is CLL and why might companies buy it?

In short, CLL is legal liability cover for the company (only). It will cover defence costs and damages / settlements. However, it doesn’t replace specialised full-limit legal liability cover available to the company such as EL/PL/Pollution, Product Liability, Cyber, or E&O. As it can be bought alongside EPL and PTL insurance as part of the management liability suite, it is not generally there to cover these things either, although some limited cover may be given if these other products are not also purchased.

 

Its purpose therefore is to fill gaps in or between other liability products or to provide some of the cover of those products for when the company gets into legal scrapes in the course of its business. In other words, it acts as something of a comfort blanket for the entity alongside the more specialist and traditional products protecting both the entity and its directors. Ensuring it dovetails with those myriad products in the way all parties intend and expect is the challenge.

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What kind of things are covered by it?

First and foremost, costs. Looking at examples of CLL in the market, defence costs cover is common for many types of claim against the company, as are costs in respect of responding to health & safety investigations and the costs of dealing with the fall-out from an identity fraud perpetrated against the company. There may also be some crisis response costs coverage.

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The provision of damages and settlements cover, however, tends to be a bit more selectively provided. An example of this is trading disputes – a common issue for all companies. Many policies will cover defence costs incurred but not the liability for damages as a result of a breach of contract, unless such liability would have existed anyway (examples of this would be where there was also negligence on the part of the company, regardless of the contract). This (I think) is on the basis that trading disputes are an inevitable cost of doing business and can arise for a variety of reasons some within and some outside the company’s control.

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For buyers and sellers alike, it may be helpful to check what is intended to be covered for damages / settlements by reference to actual examples. I have found this to be useful when working on the wordings.

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There is generally no first party cover, so Crime needs to be bought separately. I have written about Crime cover in a previous newsletter, see here: https://www.coveragematters.co.uk/focus-on-crime

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What is usually Excluded?

In addition to generally not providing directly equivalent cover to the specialised corporate liability policies mentioned above, corporate liabilities that are commonly excluded include in respect of competition or intellectual property related disputes. Securities claims against the company should be covered under the D&O so are also excluded.

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Whilst Cyber tends to be excluded, there are CLL products out there that are now offering limited cyber liability coverage.

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Why is it currently so popular?

Litigation is trending upwards after a Covid-related dip. There’s also a wider variety of commercial disputes around these days with no particular type of dispute dominating, which may be leading buyers to “hedge their bets” and buying more CLL cover. Also, disputes over evolving technologies and recent geopolitical instability may be challenging for the coverage provided under traditional products, with gaps being exposed. But buyers aren’t necessarily ready to fork out on more standalone full-limit liability products (yet).

 

On the insurer side, the public company D&O space is so competitive, that we are seeing greater efforts to entice SMEs or large private companies, which in themselves may still be very substantial enterprises, to buy more D&O-related insurance products. My sense is also that with softening market conditions, D&O market players are looking to add more value to their offering to try and hold up premium rates. This cover can be easily “bolted on” to D&O policies either as part of a truly blended offering or as a separate policy. Non-public companies don’t always buy management liability products beyond D&O, so this may be an attempt to entice such entities into looking at the other products without underwriters committing to providing more “dangerous” full limit EPL or PTL coverage to start with.

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Policy Considerations

There are a number, so here’s just a taster.

 

A threshold issue for insurers and brokers alike is whether to use a broad insuring clause embracing potentially all claims and then remove the claims not intended to be covered by exclusions, or instead provide targeted insuring clauses making clear what is covered, with relatively few exclusions. Both approaches have their pros and cons.

 

The broad insuring clause approach leaves it open as to what is covered so long as not excluded, which might be preferred by clients who don’t have any specific exposure in mind but are buying CLL as a “fall-back” for something that turns out not to be covered elsewhere. This is probably the majority of buyers. The risk with this approach though is that a random claim may not be covered under the CLL either.

 

The targeted approach puts the coverage up front and obvious – so gets a tick from the perspective of the Consumer Duty. It also avoids the client hunting for the coverage in carve-backs to exclusions!

 

If you are providing other management liability products alongside the CLL you should consider how the CLL interlocks with them and add appropriate language so it’s clear which policy pays (or pays first). I have talked about how to blend products in a previous newsletter, see here: https://www.coveragematters.co.uk/are-you-a-blender

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If you are going down the “broad insuring clause with exclusions” route, you will need to think carefully about the breadth of exclusionary language used so as not to inadvertently remove all cover. You will inevitably need to use carve-backs in the exclusions too – try and avoid “carve-backs to carve-backs” though – they are confusing and liable to be the subject of disputes.

 

If providing combined D&O and CLL cover, you need to consider how the breadth and terms of cover may vary between D&O and CLL and ensure that the definitions, exclusions and conditions reflect that distinction. For example, in a D&O policy “claim” means any type of proceedings but in CLL it should only mean “civil proceedings”. Further, whilst D&O Side A coverage should have an “innocent non-disclosure” provision, the same isn’t necessarily the case for the entity coverage.

 

A word about entity coverage and D&O

One of the things I have noticed over the last 12 months is the gradual inclusion of more entity coverage in D&O products, usually by extension. CLL is one such example but there are others; some ESG related cover and Cyber related extensions are aimed principally at entities not individuals. Whether this is a good thing will to an extent vary client by client, but there is a risk, unless limits are big enough or ringfenced, that entity losses will substantially erode the limit of liability available to directors and officers: the main reason why the cover is bought in the first place.

 

And whilst for a company entity coverage may be important balance sheet protection, for individual directors protection from the eye watering costs and potentially ruinous liabilities following on from a D&O claim is nothing less than imperative. The balance of risk/reward in being a director doesn’t stack up without full cover.

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Which is why I would keep the limits separate. I see CLL cover as an important stepping stone on a company’s journey to purchasing stand-alone products that provide broader more bespoke coverage for the risks the company knows it has with higher limits and for a premium that is rated accordingly. The shift to expanded entity coverage for SMEs is certainly underway. If you would like to chat about the way your product suite can be expanded to meet this growing demand, do get in touch.

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