Management liability insurance

Protecting your business with insurance cover is more important than ever in today’s challenging business world. One vital form of cover is management liability insurance.

What exactly does management liability insurance cover?

Management liability insurance cover protects directors and officers from any liability for mismanaging a company. Not to be confused with professional indemnity insurance, management liability insurance covers you for claims against your actions of running a company.

For example, if you unintentionally mismanage of a company you may be subject to claims from stakeholders. You could risk both:

• Losing the business
• Your personal assets in some cases

Management liability cover can help ensure your business is financially protected from these risks.

Who does management liability insurance protect?

Management liability cover specifically protects:

• The company
• Individual managers
• Directors
• Officers
• Employees involved directly in management of the company

What are the specific types of claims that I'm protected against?

Without management liability cover in place, directors and officers stand at risk of losing not only their business, but also their personal assets and financial wellbeing.

Who can make claims against you?

The range of claims that might be brought against directors and officers includes:

• Claims for wrongful dismissal or harassment from employees
• Claims from shareholders
• Claims from statutory bodies. This includes investigations by authorities like the Australian Securities and Investments Commission and WorkCover
• Claims from competitors who may accuse you of being involved in anti-competitive conduct
• Claims from a liquidator acting on behalf of the company itself

What are the most common types of claims made?

Though the range of issues and incidents a management liability insurance policy covers is quite varied, the most common types of claims made include:

• Wrongful dismissal or harassment in the workplace
• Discrimination such as the wrongful failure to employ or promote
• Allegations of improper and/or illegal conduct
• Statutory derivative actions by shareholders
• False, misleading and deceptive conduct
• Breaches of a director’s duty
• WorkCover investigations and claims relating to OH&S
• Claims brought against the company by a liquidator
• Theft by employees
• Breaches of intellectual property rights
• Investigations by the Australian Taxation Office

What type of expenses am I covered for?

Management liability insurance is therefore designed to cover any damages and claimant costs awarded against you. It also provides cover for your:

• Legal expenses
• Investigation costs
• Any pecuniary penalties

How do I make a claim?

If someone seeks reimbursement from you for company mismanagement, these are the steps you will need to follow when lodging a claim with your insurer;

1. Notify your insurer as soon as possible of the impending claim against you
2. Do not admit any liability without your insurer’s written consent
3. Cooperate fully with the investigation and defence, providing evidence and documentation as required
4. Agree to a settlement if recommended by the insurer’s legal defence team.

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Important definitions that can help you understand cover

There are some important terms you should familiarise yourself with to help you understand the ins and outs of a management liability insurance policy. These include:

• See important definitions here

  • Defence costs. Defence costs are defined as the reasonable costs, fees and expenses incurred in the investigation, settlement or defence of any claim. This can include things like lawyers’ fees and charges from experts in their field.
  • Covered Property. This includes tangible property other than money or securities.
  • Employment Wrongful Act. This term is used to cover issues such as wrongful dismissal, wrongful failure to promote or employ, wrongful disciplinary action, misleading advertising of an employment position, sexual harassment, discrimination and invasion of privacy.
  • Limit of liability. This is the agreed limit your insurer will pay in the event of a claim and will be displayed in your policy documents.
  • Bodily injury. This term includes injury, sickness, disease, mental or emotional distress, and death.
  • Claim. A claim can mean a whole range of things, including a written demand for monetary damages, a civil or criminal proceeding or an arbitration.

What am I not covered for?

• Asbestos. No claim will be paid for any loss arising from the inhalation of or exposure to asbestos, or for the cost of cleaning up, or removal of, or damage to, or loss of use of property caused by asbestos.
• Bodily injury and property damage. No claim will be paid for any bodily injury, mental anguish, emotional distress, sickness, disease or death of any person, or for any damage to or destruction of property.
• Capital raising. The insurer will not be liable for any loss resulting from claims related to the raising of capital by debt or equity.
• Dishonest or criminal intent / improper conduct. Management liability insurance in Australia will not cover any loss resulting from claims related to wrongful acts committed with reckless, dishonest or criminal intent. In addition, you will not be covered if you use your position or any information you have as a result of your position to help yourself or someone else to cause a detriment to the company.
• Industrial relations. If the loss arises from claims related to things like strikes, lock-outs, negotiation of enterprise agreements or collective redundancies, your insurance policy will not provide any cover.
• Insolvency. Loss connected to the insolvency, bankruptcy or financial impairment of your company will not be covered.
• Outside jurisdiction. Claims brought in a court or tribunal outside of Australia or New Zealand will typically not be covered under your policy.
• Known claims and circumstances. Similar to the treatment of some pre-existing conditions on life insurance policy, claims made before the commencement date of the insurance policy will not receive coverage.
• Major shareholder. Some policies will not provide cover in the event that you incur a loss resulting from claims made by a shareholder in control of 15 or more per cent of the company.
• Personal profit. If you gain any personal profit or financial advantage which you were not entitled to, you may not be covered under a management liability insurance policy.
• Pollution. The insurer will not be liable for any loss relating to pollution, including any financial loss to the company resulting from this.
• Products or services. Loss brought about by claims arising from any breach of duty in any professional services rendered by your company will not receive cover under management liability insurance. This is what professional indemnity cover is for.
• Securities. Any loss resulting from your offer, sale or listing of any securities will not be covered.
• War, terrorism and radioactivity. The insurer will not cover you for any loss relating to either of these three incidents.

Most popular questions about management liability insurance

How is management liability insurance different to professional indemnity insurance?

Many people make the mistake of assuming that management liability insurance and professional indemnity insurance are one and the same, but there are some key differences between the two types of cover

While professional indemnity insurance covers you for professional services rendered, management liability cover is concerned with the act of running a company. Make sure you’re aware of the difference between the two and that you take out both forms of cover if it is required for your business.

• Q: What does management liability insurance cover?

  A: It protects directors and officers from charges of mismanaging a company.

• Q. Am I covered against client claims for the services I provide?

  A. Unfortunately not. This type of cover is provided by professional indemnity insurance.

• Q: What’s the difference between management liability insurance and professional indemnity insurance?

  A: Management liability insurance protects against claims of mismanagement, while professional indemnity insurance covers claims against a company's professional services.

• Q: What are some of the mismanagement claims that might be made against me?

  A: Claims by employees for wrongful dismissal or harassment or claims from shareholders, liquidators, competitors or statutory bodies such as ASIC, WorkCover and the ATO.

• Q: What expenses does management liability insurance cover me for?

  A: Legal expenses, investigation costs, pecuniary penalties and any damages and claimant costs awarded against you.

• Q: What is not covered by management liability insurance?

  A: Claims related to asbestos, pollution, bodily injury, property damage, capital raising, dishonest conduct, industrial relations, insolvency, war, terrorism or radioactivity.

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