Management Liability

Why Do You Need Management Liability?

Managing a business has a large number of exposures associated with it and it is surprising to learn that many clients choose not to cover themselves for actions that may be made against them. This can be easily included in their insurance programs.

Lets try a quick quiz

Answer the following questions to determine if you have an exposure:

  1. Are you an incorporated entity?
  2. Do you have customers or clients?
  3. Are you required to comply with any legislation?    
  4. Do you have employees?
  5. Do you have competitors?
  6. Do you incur debts?
  7. Do you have dealings with other third parties?

If you answered ‘yes’ to just one of these questions, then you have some exposure to Managers Liability. Yes to all, you have a substantial exposure to many risks.

It seems companies are happy to insure the exposures of property damage and bodily injury. Many have now learnt the importance of also including Business Interruption cover for loss of income caused by property damage.

However what about the ‘management risk’? This has often remained uninsured. Is it because Management is easy and you can never go wrong? Perhaps it is because they are not aware of the exposures that can result for an innocent mistake or error, or even the legal costs that can be incurred just to defend an accusation of a wrongful act.

What are Management Exposures?

A company and its directors face both personal and company liabilities from numerous stakeholders including the following:

  • Employees – actions alleging discrimination, harassment, breach of employment contract, defamation, misleading misrepresentation, wrongful discipline, etc;
  • Creditors – alleging that the Director allowed the company to trade whilst knowing it could not pay its debts;
  • Government agencies – Directors and Officers may be personally liable for breaches of hundreds of statutes (eg. Australian Tax Office, Australian Securities Commission, Trade Practices Commission);
  • Competitors – Trade Practices Act claims brought against the Directors for misleading and deceptive type conduct;
  • Shareholders – alleging that the Directors mismanaged the operations of the company and its funds.

If there is an alleged breach of company law or regulation, your conduct as a manager and as a company is questioned. It is possible that a claim is completely without foundation, but it still costs time and money to defend a matter to a successful conclusion. Do you have the resources to fund your own defence?

What is Management Liability insurance?

Management Liability protects the individuals and the company in relation to the exposures associated with managing a company. Each and every Director, Officer and Senior Manager of an incorporated entity is personally exposed to liability for a breach of duty they owe to stakeholders. The main parts of the cover are as follows:

  • Directors and Officers: covers the Directors, Officers and Employees (including where the company can reimburse the directors) for any claim alleging a Wrongful Act (such as negligence, breach of duty, misrepresentations) by a Director or Officer 
  • Company Reimbursement: provides reimbursement to the company if an individual director or officer has been indemnified by the company (which is a likely requirement under the company’s deed of indemnity found in your constitution.
  • Company Cover: covers the Company where there is a claim against the entity alleging wrongful acts, such as negligence, breach of duty, misrepresentations. A traditional Directors and Officers policy does not include this section
  • Employment Practices: covers the Company for claims alleging employment breaches including wrongful dismissal, discrimination, harassment, deprivation of career opportunity, beach of contract etc.
  • Superannuation Trustee Liability: for trustees of a staff superannuation fund for any alleged act, error, omission, breach of duty, breach of trust, breach of authority, misstatement or misleading statement by the company.
  • Employee Crime: covers the company for theft, fraud, dishonesty embezzlement by its employees either acting alone or in collusion with others

The Management Liability Policy

Management Liability policy has been designed to use the coverage available in an ordinary Directors & Officers Liability cover which traditionally covered only Individual Directors for their own personal liability but if they successfully defended an action, could seek reimbursement from the insured company (Company Reimbursement)

Now insurers have expanded this cover further to include entity coverage for claims that would ordinarily be against an individual director or officer, as well as other employment practices issues, trustee cover for those that oversee the staff superannuation fund, Crime cover for the protection of employees stealing from company as well as other events.

The Insuring Clauses found in a typical Management Liability wording are:

  • Directors & Officers Liability cover
  • Company / Entity Cover
  • Employment Practices Cover
  • Superannuation Trustee Cover
  • Crime Cover

Additional cover in the policy usually found are

  • Investigation/Legal Costs – directors & the Entity
  • Advanced payment of defence costs
  • Estate, Heir, Legal Representative, Spouse or Domestic Partner               
  • Automatic Reinstatement (non exec)
  • Discovery Period
  • Retirement Cover
  • Outside Directorship
  • New / Former Subsidiary
  • Pollution Defence Costs
  • Fines & Pecuniary Penalties Extension
  • Public Relations Cover
  • Emergency Legal expenses
  • Statutory Liability incl Occupational Health & Safety Legislation
  • Internet Liability
  • Advertising Liability
  • Crisis Loss costs
  • Costs of defending Extradition Proceedings
  • Continuous Cover
  • Extended Reporting Period

Providing your financial position is good, you should make sure that there is no insolvency exclusion in the policy, at least for claims for matters that led to insolvency. Seek good advice but normally, the provision of satisfactory Financial Statements can have this deleted.

Your Insurance Broker…

CPR Insurance Services has access to virtually the whole Insurance Market, and can find the right cover at the most competitive price. We are one of the leading experts of this cover for Private companies.

If you just want an indication at this stage, we can do this also. The quote is subject to completion of a proposal form. All we need is your current turnover, type of industry, number of staff and years in business. It will need referral if there have been previous claims.

An insurance broker's role is to act as your representative and work in your interests, seeking the best cover at the best price for you from market knowledge.

So call a good Insurance Broker. Call CPR.- Experts who will save you

Latest News

Above-average cyclone season looms

As reported by insurancenews.com.au

Insurers should brace for an above-average cyclone season due to weakening La Nina conditions in the Pacific Ocean and warmer than average sea temperatures to the north and east, according to the Bureau of Meteorology.

The cyclone season begins next month and ends in April.

The bureau says Australia has a 67% chance of an above-average season, while the west has a 59% chance, the northwest 63%, the north 56% and the east 58%.

In neutral years the first tropical cyclone to make landfall typically occurs in late December, while in La Nina years it usually hits in the first week of December, the bureau says.

Insurance Council of Australia spokesman Campbell Fuller says even an average cyclone season – consisting of 11 events, four of which make landfall – can be devastating.

“An above-average year could bring many more than that, and each one has the potential to cause catastrophic damage if it crosses the coast in a heavily populated area,” he said.

“Only one cyclone made landfall last season, and that was in a sparsely populated part of WA’s Pilbara. There’s no guarantee Australia will be so fortunate this summer.”

Tropical Cyclone Marcia cost insurers $544 million from more than 37,000 claims when it struck Rockhampton in February last year. In 2011 Cyclone Yasi cost insurers $1.4 billion.

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Beware the escape clause in Motor policies

Cheap motor insurance can have some tough exclusions The Policy Comparison team at LMI have highlighted some new exclusions have been introduced by some of the “Cheapy” direct insurers. Previously Motor Insurance wordings did not have an exclusion for “reckless acts” but this has now changed.  Reckless driving is often defined as a mental state in which the driver displays a wanton disregard for the rules of the road; the driver misjudges common driving procedures, often causing accidents and other damages. The legal dictionary defines reckless driving as operation of an automobile in a dangerous manner under the circumstances, including speeding (or going too fast forthe conditions, even though within the posted speed limit), driving after drinking (but not drunk), having too many passengers inthe car, cutting in and out of traffic, failing to yield to other vehicles, and other negligent acts.

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