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:
- Are you an incorporated entity?
- Do you have customers or clients?
- Are you required to comply with any legislation?
- Do you have employees?
- Do you have competitors?
- Do you incur debts?
- 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