Everyone has heard about risks to the supply chain following the COVID-19 pandemic. However, manufacturing leaders need to consider another risk category: management liability.

We all know by now how COVID has triggered an additional level of risk in an already risky time. The manufacturing sector is among the top five industries that have seen COVID-19-related lawsuits against management concerning employment practices as a result of the recent pandemic.

I wanted to take a moment to examine the ways Executive Risks have shifted for the manufacturing industry and how manufacturing leaders can mitigate these risks. 

Management liability in manufacturing

Manufacturers already know they need insurance to cover a myriad of business risks. However, I've often heard from leaders at smaller organizations (especially those with only a few million in assets) that they don't think they need insurance for management liability, or what we call Executive Risks.

For manufacturers who may not be familiar with insurance for Executive Risks, here are two key types of coverage:

• Directors & Officers (D&O) Insurance: D&O is liability insurance coverage for company leaders and board members for claims made against them while serving in those positions. D&O can protect the directors and officers of privately held firms and nonprofit companies, in addition to public companies.

• Employment Practices Liability (EPL) Insurance: This insurance covers the business from claims that employees committed wrongful acts in connection with their employment in the business. The most common types of claims that EPL can cover a business for include claims of discrimination, sexual harassment, retaliation, and wrongful termination.

These coverages can be critical in helping businesses mitigate the costs resulting from a claim, but many small businesses, especially manufacturers, don't realize that this coverage is available. I've even heard, "Oh, there's insurance for that?" when I talk about the impact these claims can have on a business. 

How not having Executive Risks coverage can cause more harm

In many ways, D&O and EPL coverage is becoming necessary for many organizations - especially as they navigate today's ever-changing digital economy. Here are a few situations demonstrating why a manufacturer needs insurance for Executive Risks.

For D&O

New risks are constantly emerging as companies embrace digital transformation: industrial control systems, digital supply chain management, and the intersection of informational technology (IT) and operational technology (OT). Directors and officers who choose to implement new technology can be held accountable for anything that goes wrong, even if it's something outside of their control. 

This is where things can go awry. For example, if a business purchases new equipment, or implements process improvements and the implementation doesn't go well, leadership could be faulted for not doing due diligence or not disclosing information about the challenges (and extra costs). And, if a company chooses to forgo making these changes, they could be faulted for not making changes to modernize and reap the benefits of new technologies that could positively impact the company's bottom line.

For EPL

According to our colleagues at Gallagher, manufacturing is one of the hardest-hit industries for COVID-19-related EPL claims. For example, litigation can arise if employees are required to come back into the company's facility or office, instead of working remotely. Sometimes, these decisions may seem subjective, which can expose business owners to claims of discrimination or unfair treatment. 

Additionally, potential litigation could arise following a COVID outbreak in the workplace, where healthy employees are forced to work overtime. In such situations, an EPL claim can occur if overtime isn't paid out appropriately or, even worse, if workers are forced to work off the clock.

What you can do for additional protection

The sad reality is that there are infinite issues manufacturing owners and other leaders face day-to-day, which might result in decisions that could expose them to claims. Some of the companies that I've talked to thought having a human resources department was enough to help with risk mitigation. While HR can step in to help navigate some of these potential employer-employee issues, HR departments at smaller organizations are often under-resourced and cannot always have the expertise to effectively resolve potential claims (if these companies even have an HR department). 

Even with an HR team, you could end up paying a lot of money in the event of a lawsuit – even if the claim is settled out of court. Alternatively, if you're a larger manufacturer with private equity investors, facing regulatory oversight, or have contractual obligations with your vendors or suppliers, this is coverage you may be required to have.

The ROI of D&O and EPL insurance cannot be understated (nor underestimated). A few thousand dollars in insurance premiums can pay off significantly in the event your business or its officers and directors face litigation related to their role as a company leader. 

We will all continue to face new risks as the world changes. When something happens in your business that could turn into a lawsuit against your company or its management team, you'll be thankful to have comprehensive insurance coverage.

Coalition can provide your business with options that will allow you to focus more time on running your business, and less on managing employment risks. To learn more about the key Executive Risks trends manufacturers and other businesses face, download our Executive Risks Report.