Management Liability Insurance
Running a business comes with significant responsibility and risk, particularly in Australia’s highly regulated business environment.
Despite the best intentions, breaches of legislation and wrongful acts still occur. A breach of directors’ duties, dishonest acts by employees, harassment, unfair dismissal and statutory fines and penalties are just a few scenarios that can bring serious financial exposures to a business and its directors.
Management Liability Insurance is designed to protect your bottom line and personal assets from the risks associated with running a business.
“The likelihood of a claim that could be covered by a Management Liability policy has tripled in the past five years. With 50% of notifications resulting in a claim”
Chubb 2016 Private Company Risk Survey
Let’s start with some interesting stats…
Many businesses think it won’t happen to them, but statistics show otherwise. In fact:
- In one year, almost 2,000 people received compensation for workplace bullying in Australia
- – (Australian Productivity Commission, 2019).
- Unfair dismissal claims shot up 70% amid the Coronavirus Pandemic
- – (Fair Work Commission, 2020).
- Average penalties awarded against companies & directors for WH&S breaches exceeds $62,000
- – (WH&S Statistics Report).
The potential cost of a Management Liability Claim
LEGAL EXPENSES
Allegations can be brought against company directors and officers for wrongdoing e.g. unfair dismissal, sexual harassment, bullying, a breach of WH&S, just to name a few. Irrespective of whether claims have any merit, legal defence is essential to protect your business. Legal expenses can fast amount to tens of thousands of dollars, even if you are not found liable.
Management Liability is designed to cover legal defence costs, regardless of whether a claim against you actual or alleged.
STATUTORY FINES & PENALTIES
There are over 700 Commonwealth, State and Territory laws imposing personal liability on company directors in Australia. Maximum civil fines and penalties can reach up to $3.4M in serious circumstances costs.
EMPLOYEE CRIME
There are a growing number of employee theft and fraud incidents, likely motivated by personal financial concerns and job security as a result of the Coronavirus pandemic. The average cost of an employee crime claim ranges between $80,000 – $100,000 (Dual, 2021).
PERSONAL ASSET EXPOSURES
Without Management Liability Insurance cover, there is a potential exposure to personal assets. If your business cannot afford to pay third party compensation or statutory fines and penalties, directors can be held personally liable. This puts your own personal assets at risk, for example your home or other valuable possessions.
DID YOU KNOW?
27 unfair dismissal claims are made against an employer each day in Australia, with employers unsuccessful in defending their case 60% of the time – (Employsure, 2018)
What is Management Liability Insurance?
Management Liability Insurance is designed to cover the range of financial exposures that come with operating a business. It can protect you or your directors, officers and employees against alleged claims for a breach of directors’ duties, dishonest acts by employees, harassment, unfair dismissal and statutory fines and penalties.
Who needs Management Liability Insurance?
The risks associated with managing a business do not just apply to large corporations. They apply to businesses of all size, even SME’s and sole traders.
Interestingly, smaller businesses tend to experience a higher incidence of management liability claims compared to large organisations. This is because they generally have fewer resources to allocate to risk management activities.
What can Management Liability Insurance cover?
DIRECTORS & OFFICERS LIABILITY
Designed to cover claims for allegations against company directors or officers, including defence costs, settlements or civil penalties imposed. Wrongful acts may include a breach of duty or trust to a third party e.g. negligence, errors, omissions, or misleading statements.
CORPORATION LIABILITY
Protection for the company for claims arising from alleged wrongful acts against the business by a third party.
Cover can include protection for claims such as a wrongful acts including fraud, shareholder disputes, environmental prosecution, breach of contract, tax audit and review costs.
SUPERANNUATION TRUSTEES
Cover for a wide range of costs involved with superannuation fund disputes including investigation costs, mismanagement of funds, over payments, and exoneration costs.
CRIME COVER
Comprehensive crime coverage provides protection to the company for dishonest acts such as theft and fraud by employees, including theft of stock.
STATUTORY LIABILITY FINES & PENALTIES
Cover can protect individuals and the entity against statutory fines and penalties for a breach of legislation in the course of operating the business. Cover includes defence and investigation costs.
EMPLOYMENT PRACTICES LIABILITY
Designed to cover the company, its directors, officers and employees for claims arising from employment practices e.g. harassment, discrimination, bullying, unfair dismissal and other employment issues.
What usually isn’t covered?
Exclusions and the excess you need to pay can vary greatly depending on your insurer. Generally, your policy won’t cover:
- Cyber crime, unless specifically set out in your policy (you can get cover extensions in some cases).
- Employee entitlements.
- Property damage or bodily injury.
There are other exclusions which your Steadfast insurance broker can outline for you.
CASE STUDY
A former employee claims they were wrongfully dismissed from your business because they were unwell at the time their position was terminated. They want to be reinstated to their role and remunerated for their loss of income while they were out of work. After numerous unsuccessful conciliation attempts, the matter is brought before a court and you have to pay damages to your former employee.
A Management Liability policy allows you to recover some or all of these costs so you can continue to run your business without having to sell your business or personal assets. Depending on your policy, you may be able to make a claim for your legal defence costs, as well as the amount paid to your former employee.
It is important to review and consider the Product Disclosure Statement (PDS) for full details on coverage.
For professional advice and Management Liability Insurance placement solutions for your business, please contact All Star Brokers.
