Management Liability Insurance is a cover that is usually overlooked by business owners. It is however one of the most important covers a business needs to put in place to protect not only the business but the directors and key management as well.
Any business can experience unwelcome surprises that could potentially threaten their financial position. As a director or officer, you may be exposed to personal liability further threatening the future success of the business.
Increased regulation has heightened the operating risk for businesses of all sizes. Management Liability insurance is specifically designed to protect private companies and their directors. It’s more comprehensive than traditional directors and officers insurance, as it protects both the financial wellbeing of the company, and the personal wealth of its directors and officers.
Management Liability Insurance is easily confused with Professional Indemnity Insurance.
Professional Indemnity Insurance covers the ‘activities’ of a business whereas Management Liability Insurance covers the ‘running’ of a business.
As a simple breakdown:
- Professional Indemnity Insurance covers a business against the ‘professional advice’ it provides when a financial loss is suffered by a third party
- Management Liability Insurance covers a business against ‘mismanagement’ for losses sustained by third parties.
Management Liability Insurance is definitely its own cover and needs to be purchased separately.
Directors & Officers Liability will protect the past, present and future directors and officers of a business. It will also cover anyone else involved in the management of a company, including employees.
Director & Officer claims can arise from acts such as:
- Engaging in Unfair Competition
- Fraud or Breach of Fiduciary Duty
- Misappropriation of Trade Secrets
- Insolvent Trading
- Intellectual Property Breach
These types of claims can be made against an individual, the company or both.
Company Liability can also be known as Entity Liability or Corporate Liability.
Company Liability provides cover for actions arising from managerial matters. Many of the claims made against the directors and officers will typically be brought first against the company.
- Wrongful Act including Fraud
- Shareholder Dispute
- Unfair Treatment of Shareholders
- Environment Prosecution
- Breach of Contract
- Accidental Death
- Identity Fraud
Company Liability can be an optional cover with some insurers. It is however just as important as Directors & Officers Liability and should be included in all Management Liability Insurance policies.
Employment Practices Liability can also be known as EPL cover. Employment Practices Liability is the most commonly claimed under section of a Management Liability Insurance policy.
This cover provides protection to the company, directors, officers, and employees for employment breaches. Claims arise from current, past or prospective employees as well as, in some cases, contractors and sub-contractors.
Claims traditionally arise from:
- Bullying and/or Harassment
- Unfair or Wrongful Dismissal
- Employee Duress
- Employee Misconduct
Statutory Liability can also be known as Stat Liability cover. Statutory Liability can pay fines and penalties awarded against the business for allegations of wrongful breach of certain legislation. Statutory Liability also provides legal costs to defend the matter as well as representation at an investigation or inquiry.
Statutory Liability can cover fines or cash penalties arising from unauthorised or irresponsible actions of:
- Directors & Officers
Claims can arise from breaches to the following:
- Occupational Health and Safety
- Spam Act
- Liquor Licensing
- Environmental Protection Agency
- Building Act
- Fair Trading Act
- Privacy Act
Statutory Liability Insurance does not provide protection arising from policy prosecutions or breaches of taxation legislation.
You can read further information on Statutory Liability Insurance here.
Fidelity Insurance cover is also known as Crime Insurance cover. Fidelity Insurance protects a business from dishonest acts by employees, contractors, shareholders and other third parties.
Fidelity Insurance protects against loss of both money and tangible property caused by forgery, defalcation, embezzlement or other fraudulent acts.
Interestingly, it is usually the most trusted employees that represent the greatest fraud risk. These employees know the security measures and set up hidden systems to help them steal and keep stealing. Unfortunately, most fraud is only uncovered by accident.
Claims relating to Fidelity Insurance include:
- EFTPOS theft
- Electronic and computer crime
- Falsifying invoices
- Theft of cash from tills
- Overpaying wages
- Siphoning money from bank accounts
- Theft of inventory
- Direct financial loss to a third party
It is important to note some of the limitations of cover. A policy will not pay a claim arising from:
- Losses caused by bad accounting
- Consequential loss – Cover only for a direct financial loss
The Cyber Risk Insurance Extension on a Management Liability Insurance cover is available through some insurers.
This extension was initially created as a mini Cyber Liability Insurance add on to a Management Liability Insurance policy. However, as the market for a stand alone Cyber Liability Insurance policy grew, this extension has morphed back to a defence costs only extension.
Within the market, it can also be known as Cyber Privacy and Confidentially Costs or other similar names. The cover will provide defence costs to the business arising out of:
- Breach of a third parties data or right to privacy
- Unauthorised disclosure of confidential information
This cover can either come as standard or is an optional extra for a Management Liability Insurance policy.
Superannauation Trustees Liability cover is important as some businesses maintain their own superannuation fund for their employees. Being a trustee of a superannuation plan is a difficult and at times, a very onerous responsibility.
In today’s regulatory and litigious climate, claims can even arise when the trustees are not at fault. Breaches can arise even when there is no intention or recklessness.
Claims or disputes can arise from:
- Payment of retirement benefits
- Claims under insurance policies organised by the trustees
- Payments of benefits going to the wrong person such as a former spouse
- Misrepresentation about likely superannuation payments
- Conflicts of interest between the employer company and the fund member
- Transfer of benefits to a new fund when an old fund is wound up
Superannuation Trustee Liability is critically important as trustees can be personally liable and face legal defence costs. Trustees can also be found liable for actions of others including professional advisors.
There are a large number of different insurers that can offer a Management Liability Insurance policy. This means that policies can come in all different shapes and sizes.
Each insurer will add their own additional covers which could include any of the following:
- Tax Audit Cover
- Public Relations Expenses
- Crisis Management
- Kidnap & Extortion
- Outside Directorship Cover
Webber Insurance has access to a large number of local, interstate and overseas markets to ensure we find the most suitable Management Liability Insurance policy for your business at a competitive price.
For more information about Management Liability Insurance, speak to one of our brokers on 1300 932 237, or click the button below to arrange a quote.