Management Liability Insurance
Management Liability Insurance not only protects Directors & Officers against legal liability they may incur personally in managing a Corporation, it also extends to the corporation itself for certain types of claims. The most common form of incorporated entity to which Management Liability Insurance is offered is the proprietary company. The primary rationale behind extending cover to proprietary companies beyond the realm of a traditional Directors & Officers Insurance policy is that protecting the assets of the private company for many Directors & Officers is protecting significant ownership in those assets through their personal shareholding.
Directors & Officers may be exposed to claims brought against them by:
- Shareholders (ie. statutory derivative actions)
- Employees (ie. claims for wrongful dismissal, harassment or wrongful failure to employ or promote
- Statutory bodies (ie. actions brought by the Australian Securities and Investments Commission involving alleged breaches of a directors fiduciary duties or investigations commenced by WorkCover following a work incident)
- Competitors (ie. allegations of conduct involving anti-competitive behaviour)
- The Corporation itself (ie. actions brought by a liquidator on behalf of the company alleging insolvent trading)
Management Liability Insurance will generally cover the following amounts in relation to the above actions:
- Representation costs where a Director or Officers is legally required to attend an inquiry or investigation relating to the affairs of the corporation
- Legal costs & expenses in the defence and investigation of a Directors & Officers claim
- Any compensation required to be paid by the insured in order to dispose of a Directors & Officers claim
Actions against the corporation or losses sustained by the corporation generally covered by a Management Liability policy include:
- Employment practices liability claims
- Representation costs in respect of an occupational health & safety investigation
- Direct Financial Loss
Who needs Management Liability Insurance?
You should consider Management Liability Insurance if you sit on the board of a proprietary company.
Not all liabilities incurred by a Director or Officer are indemnifiable by the company itself.
For example a company is not lawfully able to indemnify a Director or Officer for a liability (other than for legal costs) incurred under a compensation order under s.1317H of the Corporation Act 2001. A Management Liability insurance policy does not have the same indemnity restrictions and may afford cover where the company cannot.
A Director or Officer may still be exposed to claims even if it is found the Director or Officer did indeed act honestly. The fiduciary duty of a Director & Officer to act in good faith and in the best interest of the company creates a higher benchmark than simply acting honestly.