Management Liability Insurance
Management Liability Insurance is a combined insurance product which provides protection for the company Directors, officers and managers from a number of potential liability issues. You will note that it is a liability policy which means that it is protecting the business from litigation and in the case of Cybercrime additional covers would still be necessary to cover a business’s First Party losses.
A typical Management Liability Insurance policy has the following sections of which some or all can be chosen.
- D&O (Director’s and Officer’s) Liability
- Company Reimbursement (Entity Liability)
- Corporate Liability
- Employment Practices Liability
- Crime / Fidelity
- Statutory Liability (fines and penalties cover)
- Superannuation Trustees Liability
Broad coverage is provided, including cover for fines and penalties, the costs of defending claims and attending investigations, as well as the more traditional cover for settlements and awards etc. Directors and Officers of any company are personally liable for their actions (or inaction) in their capacity as a Director or Officer of that company.
The regulatory environment has become more onerous for Directors and Officers, who can face personal liability under a wide range of sources, from the broad duties owed under the Corporations Act, to the specific requirements of occupational health and safety legislation. Fines and penalties (including those awarded for strict liability breaches of legislation), civil claims for compensation, and enduring investigations by regulatory bodies are only some of the liabilities that can arise. Even the most careful executive can incur significant legal fees in the defense of a claim in which they are ultimately exonerated.
Directors and Officers Liability insurance (D&O) offers protection for the personal assets of the Directors and senior managers of a Company against legal actions taken by third parties.
Management Liability Insurance Claims Exposure
There are a number of parties who under certain circumstances may take action against the Directors and Officers of a Company. These include Shareholders, Employees, Creditors, Clients/Customers, and Parties to commercial transactions, Liquidators/Administrators, Competitors, Government and Regulatory Authorities and members of the General Public.
Directors & Officers Liability
Correctly structured the policy will protect the past, present and future directors and officers against losses arising from claims of wrongful acts by directors or officers including:
- Unfair Competition – Misleading & Deceptive Conduct
- Fraud/Breach of Fiduciary Duty
- Misappropriation of Trade Secrets
- Insolvent Trading
DUAL Claims Example: Misappropriation of Trade Secrets
Background – A Managing Director of a competing construction company sued the Directors and Officers of an Insured competing construction company for $820,000 after 4 builders left to join the Insured competing construction company. The company alleged theft of trade secrets and claimed that the 4 builders employees were still in the employment of the construction company when they began sharing proprietary information with the Insured competing construction company.
Outcome – The Policy was triggered and indemnity was extended to the Insured. The claim proceeded to hearing and was settled at mediation for the amount of $680,000 with $240,000 of costs incurred in legal costs and expert fees.
Corporation (Entity) Liability
This provides cover to the company for actions arising from managerial matters. Many of the claims made against the directors and officers will, typically, be brought first against company, which is why this cover is extended to provide protection to the company, as well as the directors.
- Wrongful Act/Fraud
- Shareholder Dispute
- Shareholder Employment
Employment Practices Liability
Provides cover to the company, directors, officers, and employees, from claims made by current, past or prospective employees for issues arising from employment practices, including harassment, unfair dismissal and other employment issues.
- Unfair Dismissal
DUAL Claims Example: Harassment & Bullying
Background – A claim was made by four former drilling contractors against certain directors, managers and supervisors for bullying, harassment, abuse and sexual harassment. Claims were made against the entity alleging that it failed to respond to those allegations. Employees claim combined compensation of $500,000.
Outcome – It was deemed that insuring clause 2.2(c) triggered. After protracted litigation, the matter settled for payment by the company of $80,000 per claimant. In addition to this, the company incurred over $150,000 in defense costs.
Statutory Fines & Penalties Cover
Covers certain individuals, and the company, for fines and penalties from operating the business, including fines related to workers compensation and workplace health and safety.
- Workplace Health and Safety Penalties
- EPA and Pecuniary Penalties
- Other Pecuniary Penalties (Civil Penalties)
DUAL Claims Example: Escaping Pollutants
Background – An Insured construction company was fined $40,000 for causing pollutants to escape from a building site.
Outcome – The Policy was triggered and indemnity was extended to the Insured. The Insured was made to pay the fine of $25,000 and it was deemed to fall within the cover provided under the Statutory Liability section of the Policy.
A comprehensive crime section provides cover to the company for loss arising from dishonest acts, such as theft and fraud by employees, including theft of stock and money.
- Theft by Employee
- Theft of Inventory
- Theft by Contractor/Consultant
DUAL Claims Example: Theft of stock
Background – Over a period of 2 years, an employee of the Insured construction company in collusion with his wife and son were stealing building supplies to build homes for other clients. The employee and his wife had a marriage break up which resulted in her coming clean to the police. The employee was arrested and charged with the theft of $550,000 worth of building supplies.
Outcome – The Insured made a fidelity claim on their policy and it was determined that the Policy was triggered and indemnity was extended to the Insured. The Insured was able to prove their loss and make a claim for the amount of $680,000 following the report of the loss assessor who assisted the Insured to quantify their loss.
Superannuation Trustees Liability Insurance
Covering the trustee for breach of their professional duty in the management and decision of the company super fund.
Getting Your Management Liability Insurance Cover Correct
At Insuring theProduct we specialise in ensuring that:
- You understand the exposures to your business, it’s Directors and Officers
- You understand what types of claims can be bought against your business
- You understand what physical and electronic procedures you have to minimise your exposure to management liability risks
- You understand the information required and how it is used in designing your policy with the insurers
We achieve this by spending quality time with you (1:1 Site Visits) and ensuring you have adequate information and the use of our experience to correctly design your policy.
We utilise a Management Liability Insurance Fact-Finder which covers:
- Current Profit and Loss Statements for accurate financial history and estimates
- Full history of your business and claims history
- Employee numbers and activities undertaken within your business
- Full description of the business premises and business activities
- Identification of your major suppliers and customers
- Future trends or contracts you have in place/planning for period of the insurance cover
The benefits of correctly structuring a Management Liability Policy include:
- Reduced interruption to your business as the potential claim is handled by the Insurer’s legal team
- Access to Insurer’s legal team in relation to cover under the policy and how to handle circumstances which may lead to a claim.
- Specialist assistance with minimising losses
- Ability to keep contact obligations
- Ability to continue financial arrangements with lenders and gain more capital if required
Management Liability Insurance is a specialised area and not all insurers offer the same coverage or policy conditions.
Nothing can replace professional expertise advice from an experienced Specialist Insurance Broker.
To arrange a full discussion and quotation on Management Liability Insurance and how to protect your business from litigation, contact us today at 07 5313 7871 or complete the short form below. Insuring theProduct serves all areas in the Sunshine Coast including Buddina and Buderim, the Gold Coast, Toowoomba and Brisbane, QLD on a regular basis.