Management liability insurance
Management liability insurance: cover for the many risks you face when managing a business.
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Management liability insurance protects you against financial loss if you're a director or manager and are accused of making a workplace mistake. It can cover the cost of investigating, defending your name, settling and even paying claims that you are liable for.
What is management liability insurance?
Management liability insurance is designed to protect businesses from mistakes made at the management level. Its primary function is to financially protect directors, senior managers and the business itself from breaches of their responsibilities under The Corporations Act. It can also sometimes cover you for claims made by third parties for loss due to breaches in duty of care.
It is essentially a financial safety net that allows you to investigate and defend yourself should you be accused of something. It can also cover compensation costs if you are found to be liable. It also provides cover for your:
- Legal expenses
- Investigation costs
- Any pecuniary penalties
What 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. You can often tailor a policy to suit your needs and get cover for:
- Personal liability
- Fines and penalties
- Run off for retired directors
- Pre-investigation and investigation costs
- Environmental violation defence costs
- Health & Safety defence costs
- Breach of contract defence costs
- Statutory liability
- Employment practice liability
Keep in mind that this is just an example of what management liability insurance can include. Speak to the insurer directly to find out what you can get covered for.
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What types of claim am I protected against with management liability insurance?
Here's a more in-depth break down of the types of claim management liability insurance can cover you for:
- Employment issues. Management liability insurance protects you against employment claims brought by employees. These can include claims for unfair or wrongful dismissal, discrimination, sexual harassment and wrongful failure to employ or promote.
- Occupational health and safety issues. Prosecutions and inquiries into breaches of occupational health and safety can be quite damaging for businesses and individual managers or directors. Management liability insurance provides cover in these instances. OHS claims increase steadily about 15 per cent every year, and the amount claimed has risen by roughly 20% in recent years.
- Shareholder action against company directors. For example, shareholders may bring a statutory derivative action.
- Embezzlement of company funds. Claims alleging any sort of improper and illegal conduct will need to be investigated. Management liability insurance provides cover in these instances.
- Intellectual property breaches or theft. These sorts of claims can be brought by your business competitors, and protection against this sort of action in today's complex business world is vital.
- Unfair competition breaches. Your business competitors may accuse you of being involved in anti-competitive conduct. Cover for legal fees and any fines you may be required to pay is essential.
- Claims from statutory bodies. This includes investigations by authorities like the Australian Securities and Investments Commission and WorkCover. These are serious matters that can be very costly and damage to your business and to you personally.
- Claims from a liquidator acting on behalf of the company itself. A liquidator may allege that you are guilty of insolvent trading.
- Defamation by directors or officers. Defamation claims are becoming increasingly common in the Australian business landscape.
- Taxation investigations. Management liability insurance covers you against these investigations into your company.
- Claims of breaches of directors' duties. This may include claims of breaches of fiduciary duties, including breach of trust.
Did you know?
Management liability insurance does not cover you against client claims for the services you provide.
This type of cover is provided by professional indemnity insurance.
Does your business need any other insurance policies?
As well as management liability insurance, there are several other types of business insurance that can protect you for different events. These include:
- Public liability insurance. This protects you if your business becomes legally liable if someone is injured or their property is damaged.
- Product liability insurance. This covers you if the products you manufacture, distribute or sell result in someone suffering financial damages. It's often bundled with public liability cover.
- Professional indemnity insurance. This protects you if you're accused of negligence in the services or advice that you provide.
Who can make claims against me?
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?
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 am I not covered for with management liability insurance?
- 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.
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
|Management liability insurance||Professional indemnity insurance|
|What are you protected against?||Claims against the management of the company||Claims against a company's professional services|
|Who do the claims usually come from?||Shareholders, employees, OH & S inquiries, etc||Clients, competitors, business partners|
|Who is this covered designed for?||Any party that directs or manages a company||Any party or business that provides professional services|
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.
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