Pecuniary Penalties Coverage

 

Civil Penalty Provisions

Civil penalties are the 'middle ground' between criminal offences and civil remedies. The purpose of a civil penalty, generally, is to punish or deter a party engaging in a serious breach of the law, as a criminal penalty does. A civil penalty is ordered by a civil court (rather than a criminal court) and, consequently is subject to the lower standard of proof and strict evidence rules of civil proceedings. It will not be necessary to prove any fault element (i.e. knowledge or recklessness) on the part of the person (for example that a person intended to breach a civil penalty provision)

 

A director of a company has a myriad of duties imposed upon them in managing a corporation. Many of these duties impose a greater standard of conduct that simply acting in an honest manner. A director may believe, and in fact a court may agree, that they acted honestly in the discharging their director's duties however such director can still be found to have breached their duty to act in 'good faith' (one of the Civil Penalty Provisions within the Corporations Act 2001). Subsequently the director may be exposed to expensive litigation and compensation orders imposed by a court. In addition a contravention of any one of the Civil

 

Penalty Provisions can lead to civil penalties being imposed on directors or officers in excess of $200,000 for each contravention such as;

• Failing to act in good faith and proper purpose (section 181)
• Failing to exercise care and diligence in discharging their duties (section 180)
• Errors in financial reports (section 344)
• Allowing a company to trade whilst insolvent (section 558G)

 

No Fault Liability

At both federal and state level, companies and their individuals who manage such corporations can be exposed to 'no fault' liability. The most common forms of 'no fault liability' are:

• Strict Liability
• Where a breach is deemed to have been committed by a company or individual (subject to limited defences) irrespective of the intent or recklessness with which the conduct was committed.
• Vicarious Liability
• Where a company or individual is held liable for a breach of legislation by an employee irrespective of whether the employee intended the act or the company or individual authorised it.

 

No fault liability can result in substantial penalties being levied against the company and those persons responsible for managing the company. Only limited defences may be available in defence of no fault liability.

 

Management Liability Insurance

Coverforce have access to a market leading Management Liability Insurance product, backed by W.R Berkley Insurance (Europe) Limited (an insurer fully authorised and regulated by APRA) which has specifically been designed for the Construction and Manufacturing Industries, called Palladium

 

The Palladium Management Liability product can support a range of incorporated legal structures including proprietary limited companies, incorporated associations, public companies limited by guarantee and co-operatives. Palladium can provide sub-limits (up to $5,000,000) across a wide range of industries (traditional providers usually restrict this coverage to $500,000) in respect of specific statutory liability exposures.

 

Such statutory liability includes: -

• Pecuniary Penalties awarded against an Insured Person for a civil offence. Such pecuniary penalties relating to a directors duties under the Corporations Act can exceed $200,000 per contravention; or

• Pecuniary Penalties awarded against an Insured for a strict liability offence in connection with a breach of any  occupational health and safety law or regulation; or

• Pecuniary Penalties awarded against an Insured for a strict liability offence in connection with the discharge, release, dispersal or escape of Pollutants.

 

It is not surprising that higher statutory limits are being sought under management liability insurance policies noting the following volatile mix of: -

• For Insured Persons such as directors and officers, the ever increasing burden of personal liability resulting from non compliance with an array of legislation and legal obligations. Liability incurred by Directors and Officers of companies following civil actions and civil penalties may not be lawfully indemnified by the Company (but may be indemnified under and insurance contract). Such liability may include many of the civil penalty provisions under the Corporations Act 2001 and associated Pecuniary Penalties; and

• No fault liability being imposed on both the company and Insured persons under the Occupational Health and Safety (OH&S) and Environmental laws at both federal and state level; and

• Companies and Insured Persons responsible for managing companies being exposed to substantial fines and penalties under such legislation. For example in NSW OH&S penalties can exceed $150,000 for an individual and $1,500,000 for a Corporation. Similar penalties exist in other jurisdictions such as VIC.

 

Click here for More Information on Management Liability Insurance