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  • Writer's pictureReuben Bergola

Why Businesses Need Management Liability Insurance

The rise of business litigation in Australia has prompted many SMEs to review their exposure risk and restructure their insurance coverage. Management Liability Insurance is one of the most underestimated and underutilised insurance coverages, owing to a widespread misconception regarding its applicability to small enterprises.

Management Liability Insurance, in essence, covers the expenses of litigation arising from mismanagement by directors, managers, and workers, which can run into hundreds of thousands of dollars and even more.

What is Management Liability Insurance?

Management responsibility protects against the legal and financial consequences of acts and choices taken by directors, managers, and workers in operating a corporation. It is intended to safeguard the firm and its directors, managers, and officers against major financial expenditures incurred due to mismanagement or improper action by its workers, directors, and officers.

Management liability plans are carefully adapted to each company's risk profile. Depending on the coverage chosen, it can assist in reducing the financial impact of frivolous claims, essentially preventing them from being brought in the first place.

What Does Management Liability Insurance Cover

Management liability is a hybrid policy that combines several coverages essential to standard business operations, usually sold individually. Policies commonly include:

Directors & Officers Liability:

Covers losses caused by a director or officer's alleged mismanagement or improper conduct.

Employment Practices Liability:

Covers losses resulting from employment practices disputes, such as claims filed for discrimination, sexual harassment and wrongful termination.

Fiduciary Liability:

Covers losses resulting from mismanagement of employee benefits and pension plans.

Professional Liability (also Errors and Omissions):

Covers losses resulting from negligent acts, omissions or errors.

Crime Insurance:

Covers losses resulting from employee or outsider criminal activity such as theft, fraud, forgery and employee dishonesty.

What Does Management Liability Insurance Not Cover?

Companies, directors, and officers are not protected from any criminal activities undertaken on purpose. Other situations that are often not covered by management liability insurance include:

  • Other insurance coverage cover claims

  • Claims made under prior policy directors or officers who committed purposeful noncompliance

  • claims made before the policy begins

  • property damage

  • physical harm

  • fines and penalties

Management Liability Insurance vs Professional Indemnity Insurance

Management Liability Insurance and Professional Indemnity Insurance are similar in that they have similar coverages. However, Management Liability Insurance has a broader reach because it covers issues relating to the general operation instead of acts performed by professionals. Therefore, Management Liability Insurance can cover issues experienced by practically any business, while Professional Indemnity Insurance is more suited to larger businesses dealing with more significant sums.

Management Liability Insurance can also be used in conjunction with Professional Indemnity Insurance to bolster the risk mitigation and profitability of a business.

Does My Business Need Management Liability Insurance?

Management Liability Insurance may not be a necessary product for every business, but it is a valuable tool for managing its overall risk exposure. Here are a few questions to ask yourself about your business to help determine whether Management Liability Insurance is a good fit for your company:

  • Does my business's income depend on the skills and reputation of its directors or officers?

  • Is my business's reputation or brand at risk if a director or officer is negligent or makes a decision that could be deemed improper or unlawful?

  • Are company profits susceptible to employee claims?

  • Do your employees engage in tasks that could expose your business to employment law violations?

  • Do you provide employee benefits or pension plans?

  • Do you conduct business with consumers?

The risk of a lawsuit can be costly and stressful. By taking the proper steps to mitigate your business risk, you can help protect your company and its directors and officers from the potential legal repercussions.

Final Thoughts

While Management Liability insurance is not as widely known or advertised as other insurance products, it provides a valuable means of risk mitigation to all businesses. For most businesses, poor or faulty management and operational plan are one of the leading causes of disputes and litigation, making it an essential part of any company's risk management plan.

New Wave Insurance is a team of Gold Coast insurance brokers that can help you find the right insurance for your assets, businesses, and vehicles, like management liability insurance. We've helped thousands of individuals and small businesses find the appropriate coverage for their circumstances. Book a free consultation today!

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