What is Management Liability Insurance and do you need it?
The increase in corporate litigation in Australia has caused many SMEs to reassess their risk of exposure and to redesign their insurance cover. One of the most underrated and under-utilised insurance covers is Management Liability Insurance, mainly due to a global misunderstanding about its relevance to small businesses.
Essentially, Management Liability Insurance covers the costs of litigation pertaining to mismanagement by directors, managers and employees, costs that can reach into the hundreds of thousands of dollars and even higher.
What does Management Liability Insurance cover?
Allegations of mismanagement, compliance and legislative breaches from clients, shareholders, creditors, competitors and even regulatory bodies are far more common today than they were just a few years ago. Even if the claims are eventually unsupported, the costs of defending yourself in court can financially devastate your business and the loss to your reputation can be insurmountable.
Whilst the most common claims are for bullying or harassment in the workplace, as well as wrongful dismissal, Management Liability Insurance can be customised to cover other mismanagement claims that may be specific to your industry. For example, you can protect your business from claims concerning the following situations:
- Claims of wrongful acts, such as a breach of duty against past, present and future directors.
- Specific types of employee or third party fraud.
- Corporate and statutory liability, such as wrongful conduct and legislative breaches.
- False, misleading or deceptive conduct by company directors and officers.
Cover can include the legal fees for defending yourself in court, as well as the costs involved in attending an inquiry or investigation regarding the running of the company and any compensation payouts.
Management Liability Insurance vs Professional Indemnity Insurance
These are two completely different insurance covers and just because you already have Professional Indemnity Insurance, doesn't mean that you don't need Management Liability Insurance.
As you can appreciate, Professional Indemnity Insurance covers a business for claims against the financial losses suffered by third parties due to wrongful professional advice. On the other hand, Management Liability Insurance covers a business for claims against the financial loss suffered by third parties due to mismanagement.
One policy covers the activities of the business (Professional Indemnity Insurance) whilst the other policy covers the running of the business (Management Liability Insurance). Each type of policy protects your business from a different type of claim that can financially cripple your business. There's not much point in hoping that your Professional Indemnity Insurance is all you need when a client sues not only your company, but also your directors!
If you don't already have Management Liability Insurance, it's a sensible idea to talk to an insurance expert who can craft a policy that perfectly suits your needs. Without this type of policy, you leave yourself wide open to significant financial losses, as you struggle to fund your own defense and pay any associated compensation claims if the allegations are supported.
To decide whether Management Liability Insurance is suitable for your needs, talk to us today!
General Advice Warning The information on this website is general advice only and does not take into account your personal circumstances, financial situation or needs. Please connect with an insurance broker to discuss your specific needs.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Gail Findlay.