When you own, run or manage a business, it’s essential to know that you are protected when unexpected events threaten your business or personal solvency. One mission-critical measure to reduce financial risk and protect your personal assets is management liability insurance cover.There is quite a bit to unpack regarding management liability insurance.But understanding this type of insurance is essential. So we put together a guide to management liability insurance to help Perth business owners and managers protect their assets and interests.
What is management liability insurance?
Management liability insurance is a package of cover designed to safeguard the owners, directors, and senior managers of a business – plus protect the business itself – against actual or alleged breaches of the Corporation Act.Let’s break down what that means.
Package of cover
Some insurance policies, such as worker’s compensation cover or plant and equipment insurance, are standalone and specific. Management liability cover packages a range of cover unique to your operating structure, employees and exposure.Find out more about what type of cover you can bundle under the heading “What does management liability insurance cover?” below.
Protects owners, directors and senior managers
Directors, managers and executives can be liable for legal costs and damages in third-party claims, even if they do not own the business (e.g. a proprietary limited company).Management liability insurance packages that include directors and officers (D&O) cover and company liability cover can safeguard the individuals involved in a dispute from needing to sell personal assets to pay for damages or legal costs.Of course, this comes with the caveat that all covered entities and individuals should be named on the policy. You will need to keep an eye on this when leadership changes.
Protects the business
Companies risk internal losses like employee theft, securities fraud or property damage, and external losses like discrimination and harassment claims or unfair dismissal.Management liability insurance cover can help businesses recover those losses, which can often be the difference between solvency and insolvency.
Corporation Act breaches, actual or alleged
The liability landscape is constantly evolving, and business losses arise from unexpected events all the time.A comprehensive management liability insurance policy covers Perth businesses and management in the case of:
- Governance breaches
- Financial mishandling
- Mismanaged benefits
- Unsavoury management activity
Even successfully defended liability claims usually incur high costs. Management liability cover prevents individuals and business entities from losing out in either scenario.
What does management liability insurance cover?
Management liability insurance is unique. Unlike other standalone business insurance types, the package can be structured to suit the client’s individual risk profile.Cover inclusions and the liability environment is constantly evolving. However, generally speaking, these are the types of insurance you might find packaged in a management liability insurance policy.
Employment practice liability (EPL)
EPL covers payouts for alleged or actual employment breaches brought forward by a third party. This could be discrimination, wrongful dismissal, bullying, harassment, contract breaches or retaliation, as a few examples.
Directors and officers (D&O) liability
Past, present and future directors can all be held liable for actions or omissions under the Corporations Act.D&O liability covers these individuals from personal liability arising from claims made against them when they served the company.This reduces personal risk, saving an individual from selling private assets to defend their position when the company is unable or unwilling to pay.For example:
- Fraud allegations
- Insider trading
- Liability cases where the company is insolvent
- Cybercrime enabled by poor corporate governance
Australia is home to some of the most significant D&O claims, especially with cybercrime on the rise. Directors and officers face fines of up to $420,000 for data security breaches if they are found liable.
Employee crime takes many forms. Theft and fraud alone are estimated to cost Australian businesses $1.5 billion a year – and that is not accounting for property damage, cybercrime or securities fraud.Management liability insurance covers the financial fallout of crimes committed by employees and third parties, such as theft and fraud.Not all criminal activity is covered. Speak to your policy advisor to find out precisely what your policy includes.
Also called company liability or entity cover, this type of insurance protects the entity (as distinct from the individual) when liability claims arise.Corporate liability insurance covers the company’s legal defence, internal investigation, and settlement costs.
Some liability claims require a regulatory or professional body to investigate further.For example, ASIC might investigate securities or online privacy allegations, or an industry body might investigate claims of harassment in the workplace.Statutory liability cover deals with fines, penalties, defence costs or investigation costs arising from such claims.It’s important to note that statutory liability cover does not replace the need for worker’s compensation insurance. Worker’s compensation cover is mandatory Australia-wide.
If your business ends up in court to defend a liability claim, the legal costs add up quickly.Regardless of whether the claim is successful, settled or unsuccessful, your business faces a significant financial burden.Management liability insurance covers these legal costs, ensuring your business (or the people who run it) are not made insolvent by legal expenses.
What is excluded from management liability insurance cover?
Similar to the inclusions, exclusions and excesses will vary depending on your policy package.In general, management liability insurance will not cover:
You can opt for a policy extension to cover cybercrime in some cases. We recommend looking into cyber protection to safeguard your business.
Accounting costs incurred while preparing for an ATO audit are generally not covered under management liability insurance. However, you can potentially extend your policy to include these costs.
Entitlements like bonuses, dividends, leave, and salary overtime are not covered under standard management liability policies. Speak to your insurance advisor to understand the risks and requirements for your business.
Property damage or physical injury
Bodily injury and property damage will likely fall under another type of insurance, such as worker’s compensation insurance or public liability insurance.
Get a quote from Perth’s management liability insurance experts
Connect Business Insurance help thousands of Australian businesses safeguard their people, operations and employees against financial losses.Speak to an insurance advisor about your policy requirements or request a quote online, and we will get back to you as soon as possible.