12 June 2020

With widespread changes in the way we work as a result of COVID-19, there also comes more uncertainty and less control over situations which we would usually see occurring or hear about in our day-to-day business environment.

What are employees doing in the privacy of their homes during work hours, how are they being treated by other work colleagues and managers, are they safe whilst carrying out their work in a different environment? There are many considerations when trying to run a business remotely or under changed circumstances as we are now experiencing, so if you’re a business owner, perhaps it’s time to consider protecting yourself with Management Liability Insurance.

What is Management Liability Insurance?

Management Liability Insurance protects a company and its directors and officers against the risks associated with running a business. Directors and officers can find themselves personally liable for mismanagement of their company. Management Liability Insurance therefore helps to protect the director’s and officer’s personal assets as it can provide cover for the costs, fines and penalties that may arise.

Who can bring an action against a company?

Actions are usually brought by:

  • Regulators e.g. ASIC, ACCC, ATO and Workers Compensation Boards
  • Trade associations
  • Employees
  • Shareholders
  • Clients
  • Creditors
  • Liquidators and Administrators

What types of liability are covered?

The core Management Liability (often referred to as Directors & Officers) and Corporate Liability sections protect key decision makers and the entity itself, with a number of supplementary sections available to broaden the cover to meet your needs.

  • Directors and Officers Liability – designed to protect the personal assets of directors or officers by providing indemnity for any loss arising from a claim as a result of a ‘wrongful act’ committed while they are carrying out their duties and obligations in their position as a director or officer. It covers settlements, damages and defence costs.
  • Corporate Liability – provides cover for the legal costs associated with attending official inquiries, and investigations such as safe design prosecutions and coronial inquests.
  • Statutory Liability – protects a company, its directors and officers against fines and penalties imposed following a breach of legislation and is a supplement to the defence and settlements costs provided under other sections.
  • Employment Practices Liability – protects the company, directors, officers and employees against claims for employment related practices
  • Crime – protects your balance sheet from fraudulent or dishonest activities carried out by employees or outside third parties.
  • Superannuation Liability – Protection for trustees, employees, the business and the fund itself against claims brought in relation to wrongful acts involving a plan, whether actual or alleged.

Management Liability Insurance in action

The following industry documented claims examples demonstrate where Management Liability Insurance has covered clients for expenses incurred as a result of legal proceedings brought against them:

Employment Practices Liability – Harassment and Bullying

Insured: Insured is a Pty Ltd company with 20 employees and annual revenue of $20 million.

Scenario: Claims by two former officers of the company against certain directors and officers for bullying, harassment, abuse and sexual harassment against a former employee. Claims against the entity that it failed to respond to those allegations. Employees claim combined compensation of $500,000.

Outcome: Matter settled for payment by company of $200,000 per Claimant. In addition, the company paid $120,000 in defence costs.

Occupational Health & Safety

Insured: Pty Ltd Construction Company with 20 employees and annual revenue of $6.3 million.

Scenario: During the construction of a commercial property, an employee was severely injured and left paraplegic when a pile of debris accidentally fell on him. The company was subject to a full Occupational Health and Safety investigation and prosecution.

Outcome: The Company vigorously denied and successfully defended all allegations. Despite their attempt, the Company was fined $150,000 and incurred $100,000 in legal costs.

Theft of Trade Secrets

Insured: Pty Ltd company with 30 employees and an annual revenue of $3 million.

Scenario: The Chief Executive Officer of Company A left to become Chief Executive Officer of a rival Company B. Three years later, the Managing Director of Company A sued the Chief Executive and his Company B for stealing trade secrets and confidential business information.

Outcome: The claim was vigorously defended. Although the claim eventually settled on the basis that each party walks away and bears own costs, the legal costs incurred by Company B in defending the claim were $110,000.

What is retroactive cover?

An attractive advantage for business owners is that the insurer may offer unlimited retroactive cover which provides indemnity for any claim or costs irrespective of when the act, error or omission giving rise to the claim occurred.

Alternatively, the insurer may limit cover to a specific date meaning indemnity will only be provided for any claim or costs where the act, error or omission giving rise the claim occurred after the retroactive date stated in the policy schedule.

To discuss how Management Liability Insurance might benefit you, or to ask for a quote, please contact your Planned Cover state representative:

State Manager VIC
(03) 8508 5400
0415 304 119

Simon Gray
State Manager NSW/ACT
(02) 9957 5700
0400 123 424

Karen Meiklejohn
State Manager QLD/NT
(07) 3017 1500
0417 006 896

Cos Cirocco
State Manager SA/TAS & National Business Manager
(08) 8363 7366
0438 442 870

Kylie McGrath
State Manager WA
(08) 9261 1200
0429 338 570