Management liability insurance protects directors and officers and the company itself from the many exposures relating to the management of a company. Anyone who owns or is involved in the management of a company carries specific responsibilities which may leave them personally liable for any alleged or actual wrong doing.
Managing business risks is critical to the overall performance of a business. Most companies insure the tangible exposures of property damage and bodily injury but neglect to insure against economic loss. Any business can experience ‘unwelcome surprises’ that could potentially threaten their financial position leaving their managers and owners exposed to personal liability and the business under threat.
Increased regulation has also heightened the operating risk for businesses of all sizes. Management Liability insurance is one way businesses can help protect themselves against ‘unwelcome surprises’.
Given the potential severity of these types of claims, it’s worth considering Management Liability insurance for your clients.
It’s not only directors or officers of large public companies who may be exposed to personal liability; small to medium sized private companies can also be at risk. You could be protected by a policy that covers claims from a wide range of management liabilities, such as:
- Directors and Officers Liability
- Crime / Fidelity
- Commercial Legal Expenses
- Company Liability
- Statutory Liability
- Employment Practices Liability
- Superannuation Trustee Liability
Directors and Officers Liability
This provides cover to an Insured Person for claims alleging a wrongful act where the Company (Entity) is not legally permitted and/or required to indemnify them. The allegation of a wrongful act must be made against the Insured Person not the Company for this cover to respond. It is important to check whether the cover extends beyond Directors and Officers to include employees. The definition of a wrongful act can include many things such as Breach of Duty, Breach of Trust, Misstatement or Mismanagement and may differ with each Insurer. There will generally be little or no deductible on this cover.
Company Liability covers the wrongful acts of the company, not just of directors, officers and employees. It’s a way of covering defence costs and settlements in respect to third party, and defends against pollution and occupational health and safety proceedings. May also includes Fidelity, Internet Liability and Tax Audit cover.
Employment Practices Liability
Employment Practices Liability insurance is a common insurance that provides protection to a company, it’s directors and management for employment exposures.
This coverage is gaining traction in today’s market due to allegations made by employees, or third parties, that involve discrimination or harassment towards that person. Even if the allegations are proven unfounded, they can tie up management time, and also cause considerable angst to the alleged party even if proven innocent.
By having Employment Practices insurance you can outsource both the time involved, and the mental anguish, to the insurer and the insurer’s legal counsel.
Examples of claims that are Employment Practice related are below:
ISSUE: Claim for Discrimination against an officer of a nursing home
FACTS: The insured was a nursing home. A claim was brought by one of its female staff members. The staff member alleged that during lunchtime one day, while she was in the staff canteen, one of the hospital managers said to her “What you lack upstairs you have below”. The female staff member regarded this remark as offensive and brought a complaint in the Human Rights and Equal Opportunity Commission. The matter was settled out of court for $6,000. Legal costs were approximately $10,000.
ISSUE: Claim for alleged Discrimination against a director of a small manufacturing company
FACTS: The insured was a director of a small manufacturer of electrical components. One of its foreman in the factory had a relationship with one of the female employees. She was a casual worker. A sexual relationship developed and then concluded. The female employee alleged that she got less work after the relationship broke down and that the relationship was always unwanted. She believed that if she had not agreed to the relationship, then she would not have got the hours of work that she wanted. She lodged a complaint with the Anti-Discrimination Board. The matter was settled for $20,000 plus costs.
Crime / Fidelity
Covers the direct result of an act or series of related acts of theft, fraud or dishonesty committed by an identified employee (acting alone or in collusion with others) with the principal intent to cause the Company to sustain a loss and to obtain financial benefit for such employee or for any other person or organisation intended by such employee to receive such benefit.
Statutory Liability insurance is designed to protect the insured company and its directors, officers or employees from loss incurred as a consequence of a wrongful breach of statute.
The cover provided will include any statutory fine or penalty and the defence costs incurred defending a claim which alleges a wrongful breach of statute. In addition, there is cover for the costs incurred attending any regulatory investigation.
All companies, irrespective of industry, are expected to comply with a variety of statutes. A breach of a statute could result in the company facing an investigation or prosecution by a regulatory body and subsequently the imposition of a fine or penalty, even if the breach is unintentional, when the statute imposes strict liability.
Additional benefits are available in some policies for:
- Advancement of Legal costs
- Coverage for workplace audits
- Corporate image / Reputation cover
Their is conjecture in certain sectors of the insurance industry, as to whether this type of insurance should be offered, as it can be thought as being against good public policy to be offering this coverage - similar to offering insurance for e.g. speeding fines.
At this stage, this argument has not increased from a murmur, and a limited number of insurers have continued to provide this cover.
Superannuation Trustee Liability
The Insurer will pay the loss of the Insured arising from a claim first made against the Insured during the period of insurance and notified to the Insurer during the period of insurance by reason of any Breach of Trustee Responsibility in connection with a Fund.
Commercial Legal Expenses
Coverage of Commercial Legal expenses is for a number of situations and covers both Defence and Pursuit Legal costs under certain conditions. Examples of where this coverage may be of interest is provided below.
- Defence of employment disputes plus compensation the insured is required to pay for unfair or unlawful dismissal
- Defence of criminal prosecutions and appeals against notices under an OH&S Act; ACCC and similar legislation
- Pursuit of a third party relating to physical damage to property and/or goods owned which causes uninsured financial loss
- Appeals in respect of the suspension, revocation, alteration or refusal to renew a statutory licence
- Inquiry, investigation or other proceedings ordered or commissioned by a regulatory authority
- Pursuit and defence of contractual disputes with customers and suppliers
- Defence of actions brought under the Privacy Act 1998 as amended by the Privacy Amendment (Private Sector) Act 2000
- Pursuit or defence of a dispute with a landlord under a lease or tenancy agreement
- Investigations by the Australian Taxation Office and disputes relating to GST
- Pursuit of a third party causing injury or death to an employee