Managing a company involves a broad range of responsibilities — and liabilities. Business owners, directors, senior managers and board members are obligated to uphold a considerable number of laws in their management duties, laws that can hold them personally liable for various aspects of business or company operations.

Some liabilities apply even after a senior decision maker has left the company in question. And being held personally liable means their own assets are subject to the costs of a legal suit. Management liability insurance cover is designed to financially protect businesses and individuals who may find themselves in this situation, and may include costs of statutory liability fines and penalties.

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.

Here we summarise the 5 key protections management liability insurance provides and the main purpose and coverage these insurances provide for.

Here we summarise the 5 key protections management liability insurance provides and the main purpose and coverage these insurances provide for. 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.

1.Directors and officers' (D&O) liabilty

Directors and officers' liability insurance provides cover for the costs of defending business management against claims commonly related to regulatory compliance, financial performance and / or solvency issues, supplier agreements, workforce management and contingency planning.

Top risk mitigation considerations include

  • meeting financial and contractual obligations
  • supply chain risk and the business impact associated with delays.
  • adhering to compliance requirements set out by specific legislation.

2.Employment practices liability (EPL)

Employment practices liability (EPL) covers your business for costs involved with employment practice related claims which can include unfair dismissal, discrimination by past and present employees, customers or suppliers, bullying and harassment, and breach of contract.

Risk mitigation considerations include

  • documented protocols for expected behaviours and processes including anti-discrimination, harassment
  • procedures for reporting/responding to incidents
  • a human resources division providing appropriate skills and knowledge for optimal employment practices.

3.Workplace health and safety

Most employment practices liability policies exclude losses related to workplace bodily injury, however, there is generally coverage for claims relating to mental anguish or emotional distress.

In terms of workplace health and safety businesses have an obligation to do all that is reasonably practicable to provide a safe working environment. This means having an active risk management plan that addresses and provides protections against potential workplace risks.

Risk management considerations include

  • having a risk management plan that addresses potential risks
  • documentation of preventative action in remediating potentially injurious conditions
  • in evaluating management performance of health and safety responsibilities breaches have to be judged to be unintentional.

4.Crime

The crime component of management liability insurance protects your business's balance sheet from losses through theft, fraud and dishonest activities carried out by employees. Dishonesty/wilful conduct exclusions may remove cover for claims arising from some types of deliberate crimes.

Risk mitigation for crime include

  • adequate security controls and monitoring of business premises
  • employee background checks
  • payment and money handling procedure audits and controls
  • expected standards around employee conduct and protocols clearly spelled out and communicated.

5.Tax audits and investigations

Having insurance cover for responding to Australian Tax Office (ATO) or New Zealand Inland Revenue (NZIR) Department demands for your business's tax information provides for costs of accountants' or registered tax agents' fees.

Risk management considerations that insurers will look for include

  • has the ATO or NZIR notified the intention of conducting audits of your industry?
  • has your business been investigated previously?
  • contact information for your business's accountant or tax agent.

Be proactive about management liability risks

Directors and business managers are supported and protected in many ways with management liability cover. As your insurance broker, we can help to mitigate your risks and minimise what can be a significant financial blow to you or your business should the unexpected happen. If you would like to know more or discuss this further, please contact one of our experts.

Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

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