When running a business, there are several laws and regulations that you must comply with. And while you may do everything to abide by these rules, in order to minimise risk to the company, the actions of others can still mean that your business is susceptible to these risks. From low-level employees to managers and directors, their actions could expose your business to a range of liabilities and risks. This is where management liability insurance is key. It gives you the best chance of protecting the various parties that make up your business, in instances where they breach their duties and obligations.
Do I need management liability insurance?
Management Liability insurance is important. The right policy could help your business recover a range of costs in claims made against the business. It can also ensure business and personal assets are protected. Management liability insurance policies can also cover the legal costs of defending your business if it does go to court.
While professional indemnity insurance is important, purchasing management liability insurance may still be necessary to comprehensively protect your business. PI insurance mainly comes into effect when a claim arises out of false or misleading professional advice that results in a loss for the client. Management liability insurance, on the other hand, is more important to help protect a business against a claim that arises in the operation or management of the business. This means that management liability insurance is an essential cover that should be purchased alongside professional indemnity insurance.
So what is management liability insurance like in Australia? We break down the different types of cover incorporated under management liability insurance, as well as when they might be necessary.
Corporate Liability/ Company Liability/Entity Liability
Corporate liability provides your business with protection against actions from external parties claiming wrongful acts. This can include instances of workplace injuries, breach of conduct, shareholder disputes, and investigations into company affairs. Corporate liability will provide protection against actions made against the company as a whole.
Directors’ and officers’ liability
While corporate liability protects the company as a whole, directors’ and officers’ liability is a type of cover that acts to specifically protect directors, officers, and managers of the business (past, present, and future). Legislation and the common law stipulate a range of duties for these positions, with costly penalties for the company if these obligations are breached. The duty to avoid conflicts of interest, act in good faith and for a proper purpose, to exercise care and diligence, and avoid insolvent trading, are all examples of these duties owed. The right directors’ and officers’ liability insurance will be essential in protecting the personal liability of these roles.
Employment Practice Liability (‘EPL’)
Employment Practice Liability provides cover for compensation claims that may be awarded to an employee when a business is found to be in breach of duty. This often occurs when employees are successful in claiming discrimination, unfair or wrongful dismissal, or bullying by the business.
Not only can the compensation orders be costly to the company, but so can the negative impact this has on the business’s reputation in the media. These instances of discrimination/bullying against an employee can quickly ruin the reputation of a company, exposing the business to financial loss as a result. EPL cover can be key in recovering costs associated with the legal process of defending a claim, or minimising the loss suffered as a result of a damaged brand reputation.
Crime Insurance Cover
If in the unfortunate instance where an employee or contractor commits fraudulent acts, this type of cover can help recover the costs to the business. This may range from an internal crime (e.g. an employee stealing money or products), to an external crime by a third party (e.g. falsification of invoices, counterfeit, computer crimes). However, many crimes will not be covered with crime insurance cover.
Recovering the cost of fines and penalties awarded under statutes against your company is where statutory liability cover is key. The significant number of workplace incidents occur, and the high standard of care owed by businesses, imposed by the Work Health and Safety Act, means that this type of cover is key to helping the business recover a range of costs.
An important note on Management Liability insurance
There is no hard and fast rule as to what management liability insurance will be needed by a business. It will depend on the type of service/operation of your business, as well as the individual company’s construction.
Not sure what type of insurance is necessary to protect your business? Feel free to get in touch with Chimera Brokers for professional advice on management liability insurance!