All businesses, no matter what type or size, face some risk key exposures. These may involve their management, the business itself and compliance with regulations.
Traditionally the insurance protection for a business's executives and associated liabilities — directors and officers' (D&O) cover — was expensive and designed for larger organisations.
In response to the need for smaller businesses to indemnify their management and the company itself a policy that could bundle several related exposures together was developed: management liability insurance.
What size of organisation is categorised as a small business? Generally those with less than $10 million annual turnover1 and less than 20 employees2.
The critical management liability protections for SME businesses
Legal actions against a business's management can be brought by shareholders, employees, competitors or regulators. A management liability policy protects senior management and can also include the business itself as an entity.
This isn't automatic. Claims are often made jointly against the business/company and individual managers so it's important to check that the terms of the policy for statutory liability and occupational health and safety investigations costs cover both senior managers and the company itself.
Typically a management liability insurance policy would cover:
- claims of criminal behaviour or impropriety
- employment practices liability
- directors and officers' liability
- statutory liability
- tax audit.
A positive feature of the coverage is its flexibility, with most insurers offering the option to customise coverage and add on additional types of protection, such as public liability, professional indemnity and workplace health and safety.
Some of the most popular protections management liability cover offers:
Statutory liability is a key protection that provides for fines and penalties against management or the business for wrongful breaches of legislation in legal claims made by regulatory authorities. There are now over 1,000 pieces of legislation that businesses need to adhere to.
Most statutory liability claims concern breaches of occupational health and safety. Industries involving manual work tend to be the targets of most claims for fines and defence costs for workplace injuries: construction, manufacturing and trade services.
Recently there has been an increase in the number of employment practices liability cases which include unfair dismissal, wrongful termination, bullying and/or harassment. These claims are usually resolved via a monetary settlement.
Business owners and managers may avoid unfair dismissal charges by adhering to the legal procedures for dismissing an unsatisfactory employee as set out by the Fair Work Commission.
Small businesses with less than 15 staff should note that an unfair dismissal claim can't be made before 12 months of employment; for a larger business this is six months, so this should be reflected in the probation period for new hires.
Crime is also an important loss to cover under management liability, whether the protection applies to a break and enter burglary or theft committed by an employee. Beyond the loss itself and costs of bringing a legal case consider additional expenses such as a criminal investigation when setting your policy sublimit. For example, if you suspect that a staff member is embezzling from your business funds you'll probably need to hire a forensic accountant to pinpoint where and how the theft is occurring.
Other important management liability insurance protections to consider
If your business is the subject of an Australian Tax Office (ATO) inquiry responding can involve considerable expenses. A management liability policy that covers the business itself and official investigations provides for tax audit notices, reviews and state and territory audit cover.
A pollution case can also come with a mammoth bill: a legal action, defence costs and resulting fines as well as remediation of the issue and reputational damage control.
Case study: multiple expenses involved in pollution problem
Some additional protections that may be important for your business model
Business entities that are subsidiaries of the insured business can be included. Separate entities that share senior managers and similar activities may also be included in a management liability policy.
Check your management liability cover for these key exclusions
Obviously fraudulent or dishonest acts that have been committed deliberately are excluded under breach of professional duty. Many management liability terms also exclude insolvency. Major shareholders may also be excluded from management liability cover.
Cyber-related losses caused by social engineering and phishing, where a staff member is duped into paying a scammer, are excluded and cover must be obtained under a cyber policy.
Losses caused by acts of war or terrorism may also be excluded.
Which types of businesses are most in need of management liability cover
Consultants top the list for expensive claims, while construction manual work, manufacturing and trade services are involved in high-cost claims mainly due to statutory liability for occupational health and safety fines and defence costs.
The complex structure of some construction businesses means tax audit costs can be high and the high use of part time or casual employees raises the risk of employment practices liability claims.
Retail businesses may be more prone to theft by third parties or employees.
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 specific needs.
As an insurance broker service, we 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 Gallagher to support your business risks.
Last updated 15 July 2025
