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What is Management Liability Insurance?
When you're running a business, you may be personally liable for any actual or alleged breaches of the Corporations Act. And it's not just large companies that are exposed - small and medium business owners and officers could be at risk as well.
Management Liability insurance covers the costs of defending directors, managers and employees against any claims that are the result of their actions or decisions.
Why Do I Need It?
If you are faced with unexpected liability costs, Management Liability Insurance can protect your business and personal assets, such as your home, from being sold to cover the cost of paying claims.
Management Liability Insurance policies vary in the benefits they provide.
While your insurance professional can address your unique circumstances, it is often a wise decision for renters or lessees to get insurance cover for property and equipment. If you're unsure about your specific circumstances, contact our expert team today.
Here's An Example:
Hope leases a storefront for her day spa. While she does not own the building, she has a large amount of money invested in all of the equipment needed to serve her customers, as well as the items that make her spa stand out from the competition.Suppose a fire destroys the building. Most, if not all, of Hope’s equipment and decorative items will also be lost. If she does not have the necessary cover, Hope will experience a tremendous financial loss. The loss could be significant enough to force her to close her business permanently.However, if Hope has insurance that covers the property and equipment, she will be able to replace the things needed to operate her business.
To give you an idea, here's the type of cover that your policy may include:
Type of Cover
- Employment practice liability
- Directors' and officers' liability
- Crime
- Corporate Liability
- Statutory liability
- Defence costs
Potential Benefits
- Covers payouts for claims of employment breaches, such as wrongful dismissal, bullying or discrimination.
- Protects your proprietary limited company's past, present and future directors, officers and managers against claims of wrongful acts, such as misrepresentation or breach of duty (subject to business size).
- Protects your business against claims such as employee or third party fraud (not all criminal activity is covered).
- Covers cost that your business would incur if you need to defend and settle claims from outside parties alleging wrongful conduct, as well as investigation into the affairs of the company.
- Covers the cost of defence, fines and penalties under some statutes (e.g Work Health and Safety).
- Covers your legal costs if your business ends up in court.
Case Study
A former employee claims they were wrongfully dismissed from your business because they were unwell at the time their position was terminated. They want to be reinstated to their role and remunerated for their loss of income while they were out of work. After numerous unsuccessful conciliation attempts, the matter is brought before a court and you have to pay damages to your former employee. A Management Liability policy allows you to recover some or all of these costs so you can continue to run your business without having to sell your business or personal assets. Depending on your policy, you may be able to make a claim for your legal defence costs, as well as the amount paid to your former employee.
Safe Work Australia, Key Work Health Safety Statistics 2014
"Penalties awarded against companies and its directors or officers for work health safety breaches have increased by 43% to $22.3 million in one year. Penalties now average $62,000 per company."
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Did You Know?
Many businesses think it won't happen to them, but statistics show otherwise. In fact:
(Chubb 2016 Private Company Risk Survey)
The likelihood of a claim that could be covered by a Management Liability policy has tripled in the last five years, with 50% of notifications resulting in a claim.
Chubb 2016 Private Company Risk Survey
The most common claims are for employment practices like bullying, harassment and wrongful dismissal.
Chub, 2016 Private Company Risk Survey
Major claims by amount relate to crime - including employee fraud.
Management Liability Insurance policies vary in the benefits they provide.
To give you an idea, here's the type of cover that your policy may include:
Type of Cover
- Employment practice liability
- Directors' and officers' liability
- Crime
- Corporate Liability
- Statutory liability
- Defence costs
Potential Benefits
- Covers payouts for claims of employment breaches, such as wrongful dismissal, bullying or discrimination.
- Protects your proprietary limited company's past, present and future directors, officers and managers against claims of wrongful acts, such as misrepresentation or breach of duty (subject to business size).
- Protects your business against claims such as employee or third party fraud (not all criminal activity is covered).
- Covers cost that your business would incur if you need to defend and settle claims from outside parties alleging wrongful conduct, as well as investigation into the affairs of the company.
- Covers the cost of defence, fines and penalties under some statutes (e.g Work Health and Safety).
- Covers your legal costs if your business ends up in court.
What Usually Isn't Covered?
Exclusions and the excess you need to pay can vary greatly depending on your insurer. Generally your policy won't cover:
- Cyber crime, unless specifically set out in your policy (you can get cover extensions in some cases).
- Employee entitlements.
- Property damage or bodily injury.
There are other exclusions which your Connect Business Insurance broker can outline for you.
Case Study
A former employee claims they were wrongfully dismissed from your business because they were unwell at the time their position was terminated. They want to be reinstated to their role and remunerated for their loss of income while they were out of work. After numerous unsuccessful conciliation attempts, the matter is brought before a court and you have to pay damages to your former employee. A Management Liability policy allows you to recover some or all of these costs so you can continue to run your business without having to sell your business or personal assets. Depending on your policy, you may be able to make a claim for your legal defence costs, as well as the amount paid to your former employee.
