Management Liability Insurance in Action: Business Examples

Business owners, directors, senior managers and board members are responsible for upholding numerous laws in their management duties. They can also be held personally liable for various aspects of business or company operations if their decisions or activities contravene these regulatory conditions.

Check out this range of examples* that show how management liability insurance provides financial protection against a broad range of exposures involved in running a company.

Management liability protection in action: 9 case study examples

Alleged wrongful acts by directors and officers

When an entrepreneurial business designed and manufactured beverages to sell in supermarkets as an alternative to branded products the original manufacturer, as the patent owner, alleged that the alternative product was a copy of their intellectual property and sued the entrepreneur. Fortunately management liability insurance supported settlement of the matter.

Professional indemnity

Construction companies subject to claims brought by contractors or final owners who allege defects in the work can face costs in the hundreds of thousands of dollars to defend themselves. In this case the claim ran into millions but the business's management liability insurance supported resolution of the matter without going to court.

Statutory liability

A state police service running an in-depth investigation breached COVID-19 health protocol requirements when attending a venue in the course of their activities and was issued with two penalties for the violation. The cost of fines was covered under the service's management liability insurance.

Employment practices liability

When a disgruntled employee made a claim that they had been underpaid as a result of being incorrectly categorised as a permanent employee, the staff member also included the company's directors in the legal action. The matter was settled out of court under the business's management liability insurance which also covered legal expenses.

Privacy

During a dispute about an employee's termination the ex-employee alleged a privacy breach with respect to the confidentiality of the termination. A complaint was submitted to the Privacy Commissioner, with the cost in defending the matter covered by the business's management liability policy.

Workplace health and safety

In an unusual maritime accident a crew member fell off a commercial vessel and suffered significant head injuries. Because the boat had not been fitted with safety restraints, the injured man brought a damages claim against the company, which was resolved under management liability cover.

Employee theft

In a bold white collar crime move, a business's former top executive essentially hijacked operations by locking the owner out of all systems and stealing funds and a vehicle. The owner's management liability insurance provided cover under its crime investigations and crisis containment sections of the policy. The claim was also later expanded to include contractual liability defence costs coverage.

Cyber fraud

A business's email system was accessed by a threat actor who issued instructions to employees to make various payments to external bank accounts. The resulting substantial loss was verified by an external forensic investigator, enabling a successful management liability claim for the monies lost.

Tax audit

When the Australian Tax Office instigated an audit of a company with a number of business entities, the management was thankful for its management liability insurance which covered accountancy costs of $115,000 involved in responding to the investigation.

Who can bring a management liability claim?

Legal claims can arise from statutory authorities and regulators such as the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA), your own company or its shareholders, employees, creditors, competitors or, in a worst case scenario, administrators or liquidators.

Some liabilities apply even after a senior decision maker has left the company in question. Being held personally liable means your own assets are subject to the costs of a legal suit.

Management liability insurance is designed to provide a range of specific protections for business owners and senior managers around their business decisions and management decisions, mainly aimed at containing legal costs and damages settlements. It may also include costs of statutory liability fines and penalties.

What business risks does management liability cover?

Management liability insurance policies typically bundle together several optional or standalone insurances into the one policy to offer protection for a variety of risks or liabilities that relate to legally required management obligations. The cover extends to the costs involved with investigating and defending cases brought against senior managers. These are usually based on the broad categories of:

• directors and officers' liability
• employment practices
• some aspects of workplace health and safety
• crime, theft and malicious damage
• tax audits.

Get expert advice on protecting against management liability risks

Management liability insurance provides multiple protections for directors and business managers and offers flexibility in adapting the scope of the cover to your individual needs.

As your insurance broker, we can help to mitigate your risks and minimise what could be a significant financial impact should the unexpected happen. If you would like to know more or discuss your business needs further please contact one of our business insurance experts.

*The description of some parties has been changed for privacy reasons.

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