Management Liability Insurance - What you should know
There are several risks and exposures associated with running a business which could threaten the financial position of both a company and its directors. Understanding and taking out the right Management Liability Insurance cover can be vital in helping to reduce these liabilities.
When thinking about the potential exposures to your business, it is easy to focus on the risks associated with your tangible assets such as the product or service you provide. However, risks are inherent in all areas of business. With such a highly regulated and contentious business environment, it is becoming increasingly important to also consider any liabilities that may arise from the management of your business.
As a company director or manager, you are required by law to ensure decisions are made with due care and diligence and in the best interest of the business. This means you can be liable to a variety of stakeholders for your business decisions and practices, including employees, partners, clients, competitors and shareholders.
If a claim is made against you from any one of these stakeholders, the associated legal costs and damages can be financially crippling to a business of any size. The harsh truth is, if you are not adequately protected, you can leave yourself at risk of losing not only your business but your personal and family assets too.
How can Management Liability Insurance help?
Management Liability Insurance is designed to help protect the personal assets of company directors, managers and officers against potentially large and unexpected liability claims regarding the management, governance or compliance of the business.
For each risk included in your policy, you will typically be covered for damages and claimant costs awarded against you, legal and investigation costs, civil fines and penalties and representation costs where you are legally required to attend an inquiry or investigation.
Claims brought against you could arise from management liability risks including (but not limited to):
Employment Practices Liabilities
Workplace Bullying and/or Harassment
Claims relating to bullying or harassment are estimated to cost Australian organisations up to $36 billion¹ through lost productivity, increased absenteeism, poor morale and the time spent documenting, pursuing or defending a claim.
According to Safe Work Australia, the median cost for accepted bullying and/or harassment claims is approximately $27,153².
As the manager or director of a business, you could be found legally liable should one of your employees make a claim for bullying or harassment in your workplace. If you are found accountable for such claims, you could face prosecution by the Fair Work Commission.
Unfair Dismissal
Managers and directors could also be left to defend claims relating to unfair dismissal where an employee feels their contract has been terminated harshly or unreasonably. Should the compensation be awarded to your employee, a business could be ordered to pay a sum of up to $71,000³, an amount that could have serious financial impact, particularly for a small to medium sized business.
Statutory Liabilities
Occupational Health and Safety (OHS)
Breaches identified under the Work Health and Safety Act 2011 can incur penalties, regardless of whether intentional or deliberate conduct is established. A business owner or manager can be issued personal fines for reckless conduct of up to $600,000 for breaching their health and safety duty. The potential penalty faced by a body corporate for reckless conduct could reach $3,000,000.
Crime Cover
Employee Theft or Fraud
In the last 24 months, 45% of Australian organisations have experienced acts of economic crime, with 60% of those cases committed by someone close to the business such as an employee4. It is important that businesses don't underestimate their threat environment and consider both external and internal sources of economic crime. Cover can help to minimise the risk of incurring significant and direct financial loss should an employee (past or present) commit an act of fraud or dishonesty.
Directors and Officers Liabilities
Mismanagement by Directors
Company directors can be found personally liable under the Corporations Act 2001 (Cth) for breaching their director's duties. Potential breaches can include instances or allegations of fraud, wrongful acts, or misleading and deceptive conduct.
Offending directors could face civil penalties of up to $1.05 million5 or be required to compensate the company for any loss or damage incurred because of a breach. Depending on the severity of the misconduct, if the breach is reckless or dishonest, the director may also incur criminal penalties.
Having cover can help protect directors in the event they are ordered to pay monetary sums or fines to a regulatory authority if they are found to be operating in breach of legislation.
How Coverforce can help
At Coverforce, we understand the exposures faced by directors, officers, managers and business entities. Our expert insurance brokers will work with you to provide personalised risk advice on the right Management Liability policy to protect the assets of you and your business.
Contact Coverforce today and have confidence knowing that you have cover in place that is reliable and competitively priced.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.
References
- https://www.headsup.org.au/supporting-others/workplace-bullying
- Safe Work Australia - Psychological Health and Safety and Bullying in Australian Workplaces: Indicators from accepted workers compensation claims, Annual Statement, 4th Edition, 2017.
- https://www.fwc.gov.au/unfair-dismissals-benchbook/remedies/compensation/compensation-cap
- https://www.pwc.com.au/consulting/assets/gecs-report18.pdf
- https://aicd.companydirectors.com.au/membership/membership-update/stronger-corporate-penalties-are-here
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