What is Management Liability?
Becoming more and more necessary, Management Liability insurance protects the company and the people who manage the company, such as the director/s and officers, against the risks and exposures of running the business – the intangible risks that you perhaps do not see.
The policy provides cover against allegations and acts of misconduct & legislative breaches; statutory fines & penalties; breach of duty; OH&S issues; unfair dismissal; sexual harassment and the like. It also protects a business against losses arising from dishonest acts of employees and third parties, including theft of money & stock and the costs of responding to an audit from the ATO, office of state revenue or other Government departments.
Management Liability is commonly overlooked because of a lack of understanding. It’s assumed that cover is provided in existing policies held by the company, such as a Business Package, Public Liability or Professional Indemnity policy and as the regulatory environment changes, directors are often unaware of their full responsibilities at law. Without sufficient protection, you could potentially risk losing not only your business, but your personal assets too.
Who should consider it?
Management Liability should be considered by all business owners, large & small. Companies are facing greater challenges in the current economic and regulatory landscape and due consideration should be taken to properly protect the business and key management personnel.
The exposures associated with managing a business are vast and numerous and it is often the one exposure that is not addressed in insurance programs. All companies insure the tangible exposures of property damage and bodily injury, however the key economic exposure of the ‘management risk’ has often remain uninsured.
What are Management Exposures? A company and its directors (and officers) face both personal and corporate liabilities from numerous stakeholders including the following:
- Liquidators / Administrators
When a breach of company law or regulation is alleged, the focus is on your conduct as a manager and as a company. You may think a claim is completely baseless or without merit, but it will still cost time and money to defend successfully.
Common Management Liability claims include:
- Breaches of director’s duties and/or fiduciary duties, including breach of trust
- False, misleading & deceptive conduct by directors/officers and employees
- Actions alleging improper and illegal conduct
- Statutory breach of duty i.e. under legislation
- WHS prosecutions and inquiries
- Employment related matters, including unfair/wrongful dismissal, discrimination, harassment, wrongful failure to employ or promote, etc.
- Defamation by directors/officers
- Breach of intellectual property rights by directors/officers
- Employee theft, including theft of money and property
- Statutory fines & penalties
- Taxation investigation costs
Did you know:
Maximum penalties for breaches under the WHS Act are $3m for
corporations, $600k or 5 years’ imprisonment or officers and $300k or
5 years’ imprisonment for workers.
What can it cover:
The main sections of the policy are as follows:
- Directors & Officers Liability
Covering the Directors and Officers (including where the company can reimburse the directors) for any claim alleging a Wrongful Act (negligence, breach of duty, misrepresentations, insolvent trading, misappropriation of trade secrets, unfair competition, etc.) by a Director or Officer.
- Company Liability
Covering the Company where there is a claim against the entity alleging Wrongful Acts.
- Employment Practices Liability
Covering the Company for claims alleging employment breaches including wrongful dismissal, discrimination, harassment, deprivation of career opportunity, breach of contract, etc.
- Statutory Liability
Covering fines & penalties imposed under an Act of Parliament, i.e. WHS fine.
- Crime / Fidelity
Covering the company for theft by its employees (and sometimes) third parties, including money, stock and other property.
- Tax Audit
Covering the external costs in responding to a taxation audit and often payroll tax audits, workers comp audits and the like.
- OH&S Defense Costs
Covering the costs incurred to defend an OH&S claim or attendance at an investigation into your workplace health & safety.
What isn’t covered:
Management Liability will not cover your legal obligation to make statutory payments, such as taxes, wages and employee benefits. Defense costs associated with such action would also be excluded.
Your decision to take legal action against a third party will also likely be excluded. The policy will generally cover claims against you, or loss you have suffered due to a third party.
Other exclusions will apply and you should review any quote received carefully and consider the policy wording for all policy terms, conditions, exclusions and limitations.