Business owners, directors, senior managers and board members are responsible for upholding numerous laws in their management duties. They can also be held personally liable for various aspects of business or company operations if their decisions or activities contravene these regulatory conditions.
Management liability insurance is designed to provide a range of specific protections for business owners and senior managers against legal actions taken as a result of business decisions they have made, and is mainly aimed at containing legal costs and damages settlements. It may also include costs of statutory liability fines and penalties.
For example:
Employee theft
In a bold white collar crime move a business's former CEO and CFO essentially hijacked operations by locking the owner out of all systems and stealing funds and a vehicle. The owner's management liability insurance provided cover under its crime, crime investigations and crisis containment sections of the policy. The claim was also later expanded to include contractual liability defence costs coverage.
This is just one instance of the range of protections management liability insurance provides against exposures involved in running a company. See more below, plus key information about who may bring a claim against your business and how management liability cover responds to protect your senior managers.
Management liability protection in action: 8 more case study examples
Wrongful acts by directors and officers
When an entrepreneurial business designed and manufactured a product to sell in supermarkets as an alternative to branded items the original manufacturer, as the patent owner, alleged that the alternative was a copy of their own design and sued the entrepreneur. Fortunately management liability insurance covered the cost of settlement.
Professional indemnity
Construction companies subject to claims brought by contractors or final owners who discover shortcomings in the work can face costs in the hundreds of thousands of dollars. In this case the claim ran into millions but the business's management liability insurance supported negotiation on a settlement figure.
Statutory liability
A state police service running an in-depth investigation breached COVID-19 health protocol requirements when attending a venue in the course of their activities and was issued with two penalties for the violation. The cost of fines was covered under the service's management liability insurance.
Employment practices liability
When a disgruntled employee made a claim that he had been underpaid as a result of being incorrectly categorised as a permanent staff member he also targeted one of the company's directors in a legal claim. The matter was settled out of court under the business's management liability insurance which also covered legal expenses.
Privacy
After a disputed employee termination claim, the person in question also made a privacy breach complaint to the Office of the Australian Privacy Commissioner regarding information concerning their dismissal having been made public. The business's management liability cover provided for the expenses involved with responding to the claim.
Workplace health and safety
In an unusual maritime accident a crew member fell off a boat and suffered significant head injuries. Because the vessel had not been fitted with seat belts the injured man brought a damages claim against the company, which was resolved under management liability cover.
Cyber fraud
A business's email system was accessed by a threat actor who issued instructions to employees to make various payments to external bank accounts. The resulting substantial loss was verified by an external forensic investigator, enabling a successful management liability claim for the monies lost.
Tax audit
When the Australian Tax Office instigated an audit of a company with 15 business entities the management was thankful for its management liability insurance which covered accountancy costs of $115,000 involved in responding to the investigation.
Who can bring a management liability claim?
Legal claims can arise from statutory authorities and regulators such as the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA), your own company or its shareholders, employees, creditors, competitors or, in a worst case scenario, administrators or liquidators.
Some liabilities apply even after a senior decision maker has left the company in question. Being held personally liable means your own assets are subject to the costs of a legal suit.
What business risks does management liability cover?
Management liability insurance policies typically bundle together several optional or standalone insurances into the one policy to offer protection for a variety of risks or liabilities that typically relate to legal and required management obligations and compliance with regulatory conditions. These include the broad categories of:
- directors and officers' liability
- employment practices
- some aspects of workplace health and safety
- crime, theft and malicious damage
- tax audits.
Get expert advice on protecting against management liability risks
Management liability insurance provides multiple protections for directors and business managers and offers flexibility in adapting the scope of the cover to your individual needs.
As your insurance broker, we can help to mitigate your risks and minimise what could be a significant financial impact should the unexpected happen. If you would like to know more or discuss your business needs further please contact one of our business insurance experts.
