General Partner Liability

Not all business formations qualify for comprehensive and adequate Directors and Officers Liability under standard policy forms. While a General Partner’s management and fiduciary responsibilities to a limited partnership are similar to those of a Director or Officer of a corporation, the D & O policy was not designed to cover the unique exposures and legal complexities of partnerships.

Partnerships are used as investment and financing vehicles primarily to avoid double taxation inherent with incorporation. The partnership arrangement is a more sophisticated investment structure, thereby placing a higher fiduciary duty on General Partners than their counterparts who manage corporations. Claims against General Partners come primarily from Limited Partners, with allegations ranging from: false or misleading statements or material omissions in offering memorandum disclosures; conflict of interest; investment returns that fall short of expectations; failure to adequately perform fiduciary duties or contractual obligations; and undue competition from affiliated firms associated with the General Partner. Claims also come from regulatory agencies, competitors, creditors, employees and suppliers.

General Partner Liability and Partnership Reimbursement Insurance is available from many, but not all, Professional Lines insurers. It covers the individual and/or corporate General Partners for claims arising out of Wrongful Acts such as breach of duty, breach of good faith and misstatements. Most partnership agreements provide indemnification to the General Partner for actions against the General Partner. It must be noted that the actual Limited Partners (i.e. investors, similar to corporate stockholders) are not covered under a GPL policy. Coverage is designed to protect the General Partner and indemnify the limited partnership for claims – often brought by limited partners (investors).

Private (non-publicly-traded) partnerships generally obtain coverage on a stand-alone policy form or combined with other coverages such as Employment Practices Liability and Fiduciary Liability. Limits generally are available on a separate or combined basis, depending on the carrier. Publicly-traded companies generally obtain GPL coverage separate from other Professional Lines.

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