Management Liability Insurance
What is Management Liability Insurance?
Directors and officers of private companies and a company itself are exposed to liability for breaches of the duty they owe to others through a simple act, error or omission in managing a company. Management Liability insurance is policy designed specifically to protect against such risk exposures. Now cover is also available for Sole Proprietors and Partnerships which is tailored specifically to their business structures and risks.
Why do we need it – wouldn’t our Public Liability policy cover us?
Public Liability insurance covers a company for its liability for bodily injury to others or property damage – not claims for economic loss suffered by others or breach of statutory duty.
What are the risks faced by persons as directors and officers?
The cost of defending a claim, and any damages and costs awarded against them based upon an allegation of them breaching their duty as a director or officer or arising out of an employment related complaint.
What are the financial risks faced by a company?
The assets of a company may be exposed to the cost of defending a claim and any damages and costs awarded as a result of wrongful act; theft or fraud by employees and cost of investigating theft or fraud by employees; pecuniary penalties imposed.
What are types of claim a company could face?
The following are examples of possible claims:
- Breach of Directors’ or Officers’ duties
- Company or Entity breach of duties
- Employment practices liability
- Trustee liability for Superannuation fund
- Crime cover for loss of money &/or stock
- Tax investigation costs
- Statutory liability
- Occupational Health & Safety breach defence costs
Refer to the following Claim Scenarios for practical examples of why you need Management Liability insurance
Scenario: The insured company discovered a discrepancy in their finances. Investigations were completed by external auditors and it was found that the insured’s chief financial officer was involved in the misappropriation of the funds.
Outcome: The Insured was able to claim under the Fidelity Insuring Clause for $50,000.
Scenario: An employee of a medium-sized company claimed that she was subjected to sexual harassment by fellow employees.
She sought an apology from the employees who committed the alleged harassment, as well as compensation for loss of earning capacity and reputation, emotional distress, depression, medical expenses and legal costs.
Outcome: The insured and the claimant were able to reach an agreement at conciliation and the employee was awarded $28,000 in damages which was covered by the company’s insurance policy.
Scenario: The company dismissed a 59 year old manager due to poor performance including alienating employees and customers, and a general lack of interest in his job.
The dismissed employee alleged he was dismissed due to his age after a younger employee replaced him, with comments by senior management about needing “to get rid of the old guys”. The employee had received regular pay increases based on performance, and poor performance was not noted on the termination form as the reason for his dismissal.
Outcome: The company felt they were innocent of the allegations but decided to settle out of court rather than defending in court due to the high cost. Settlement was $250,000 and legal expenses totalled more than $60,000.
Scenario: CEO of privately held company left to start a new software company and was subsequently sued individually as an officer of the new company by his former employer. The allegations included trademark infringement and unfair competition as the former employer claimed that he had taken a corporate license to market a particular software product.
Outcome: Defendant settled for a payment of $250,000 and expenses of $130,000.
Crime — Theft of inventory
Scenario: A manager of the company and an employee together manipulated inventory supply numbers of raw material to defraud the company. Both raw products and finished products were stolen and sold by the manager and employee over a two year period.
Outcome: Total loss to the distributor was in excess of $1.6 million plus costs of a private investigator to uncover the scheme.
Occupational Health & Safety
Scenario: During a busy time, the Company employed a part-time contractor who caught his hand in a machine and lost two fingers. This resulted in a full occupational health and safety investigation.
Outcome: Company was found liable for $100,000 plus paid $45,000 in defence costs.