What is Management Liability Insurance and Who Needs It?

Do I Need Management Liability Insurance?

Management Liability insurance reduces the risks for directors and managers and the insured company itself from the multitude of potential types of exposures the may encounter in relation to managing a business.
You may think of it as such: where Professional Indemnity insurance covers the advice and/or services you provide to your customers, Management Liability coverage reduces the potential risks that can arise from running your own small business. These risks can include:

  • OH&S dramas
  • Unfair dismissal
  • Sexual harassment
  • Statutory breach of duty
  • Defamation and
  • Statutory fines & penalties.

If you are a business owner, business executive, or a senior business manager, you will likely be aware of Management Liability insurance and how it can help to reduce the unique risks that come with your role as a business leader.

Management Liability Insurance explained

Management Liability insurance is a specialised type of business insurance that reduces the risks to business owners, business executives, and senior managers, who can be held responsible for legal costs and damages stemming from management liability disputes. Management Liability insurance protects directors and the insured company itself from a number of ways that they may be exposed in relation to the management of a company.

Management Liability insurance can reduce the risk for business leaders and may be a sound investment for those looking to reduce their risks by covering the legal costs, damages, and losses that can arise from management liability disputes. Examples where Management Liability insurance can help reduce your risk include the following:

  • Liability related to one of your employees harassing or bullying a colleague without your knowledge.
  • A case of wrongful dismissal brought by a former employee.
  • Theft by a staff member.
  • An ATO audit and expenses relating to alleged tax avoidance or tax audit costs.
  • Your business IT system being hacked, and sensitive information was stolen.

Management Liability coverage reduces the risks that arise from running your business. Such risks can include situations such as OH&S issues, unfair dismissal claims, sexual harassment claims, statutory breach of duty, defamation, and statutory fines and penalties.

Management Liability insurance typically provides cover for managers risks such as:

  • Damages and costs awarded against the insured;
  • Legal and defence costs;
  • Claims investigation costs; and
  • Some civil fines and penalties.

Some events that Management Liability insurance typically won’t cover include:

  • Bodily injury and property damage;
  • Insolvency;
  • Dishonesty/criminal action (except under the Crime section); and
  • Known claims and circumstances.

Management Liability Insurance vs. Professional Indemnity Insurance

While there are some similarities between Management Liability insurance and Professional Indemnity insurance, there are key differences that should be considered before purchasing a policy. While Professional Indemnity insurance covers the professional activities of your business, Management Liability insurance covers the ‘running’ of your business.

While a Management Liability policy can be customised to suit the specific needs of your small business, typically there are seven individual areas of coverage available as part of a Management Liability policy. Let’s examine each area and look at what cover each provides as part of a Management Liability policy.

1. Directors Liability Insurance

Protects directors and officers from claims of actual or alleged wrongful acts in their role as a director or officer. If the company indemnifies the director or officer for such liability, it will be entitled to cover under the Company Reimbursement section of the policy. To reduce your risk of a Directors and Officers Liability claim you many consider:

  • looking for ways to reduce your supply chain risk;
  • meeting all of your financial and contractual obligations; and
  • adhering to compliance requirements set out by relevant legislation.

2. Corporate Liability

Protects your business against claims of alleged or actual wrongful acts by it (as opposed to claims being made against the directors or officers). To reduce your risk of a Corporate Liability claim you may consider:

  • How you structure your business;
  • Reducing your exposure to risk via Management Liability insurance; and
  • Thoroughly understanding all business regulations that are relevant to your business and industry.

3. Employment Practices Liability

Employment Practices Liability (EPL) Insurance helps employers reduce the risk and potential cost of claims taken against them by employees. Covered claims may relate to allegations of discrimination, unfair dismissal and sexual or workplace harassment. To reduce your risk of an Employment Practices Liability claim you many consider:

  • Implementing zero-tolerance policies for inappropriate or illegal acts, such as harassment or discrimination.
  • Composing and distributing an official employee handbook that includes all workplace policies and procedures. This handbook should be regularly reviewed and updated.
  • Establishing formal job descriptions for all positions that clearly detail expectations, requirements and performance standards.

4. Statutory Liability

Statutory Liability insurance is cover for small business owners for fines, penalties, and legal representation to defend against allegations of some legislative breaches, such as investigations and prosecutions by WorkSafe. To reduce your risk of a Statutory Liability claim you may consider:

  • Developing and implementing a comprehensive risk management plan;
  • Ensuring you have adequate insurance coverage; and
  • Carefully reading the fine print in your Statutory Liability policy and understanding what you are covered for, and what you are not covered for.

5. Tax Audit

Covers the company associated with a tax audit by the ATO, such as accountancy fees. To reduce your risk of a Statutory Liability claim you may consider:

  • Only claiming deductions to which you are entitled. The deduction must be directly related to earning assessable income.
  • Maintaining accurate financial records and keep relevant invoices and receipts.
  • Reducing the risk to your business via Tax Audit Insurance.

6. Cyber Liability Insurance

Cyber Liability insurance helps protect your small business from claims and supports your profitability in the event of a cyber breach or attack. Costs related to defending a cyber claim are also covered. Examples of risks that Cyber Liability insurance helps with include inadvertent loss or release of customer personal information, cyber crime, cyber extortion/ransomware, and business interruption due to a cyber event.

To reduce your risk of a Cyber Liability claim you many consider:

  • Encrypting your data and creating back ups.
  • Assess and monitor your vendors.
  • Implementing a secure cybersecurity policy.

7. Superannuation Trustees Liability

Cover for liability arising from any actual or alleged act, error or omission with respect to a superannuation plan; or arising solely because of any person’s status as a Superannuation Trustee.

To reduce your risk of a Superannuation Trustees Liability claim you may consider:

  • Avoiding delays in providing certified orders.
  • Advising clients to keep up-to-date superannuation records.

Want to learn more about Management Liability insurance? Visit our online destination for Management Liability insurance to compare competitive business insurance quotes, get covered in a mere 10 minutes, and get back to business. If you prefer to speak with us, you’ll reach our friendly team on 1300 920 867.

This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
© 2022 BizCover Pty Limited, all rights reserved. ABN 68 127 707 975; AFSL 501769
ABN 68 127 707 975; AFSL 501769

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