Why is management liability insurance important for your business?
Conflicts arising from the workplace have become increasingly common, in particular with current market conditions affected by the global pandemic. SMEs are subject to legal action which can be financially devastating for both the business and its executives. The need for Management Liability insurance has grown in importance.
Management liability insurance covers the costs of defending directors, managers, and employees against any claims that are the result of their actions or decisions. Having the appropriate policy allows the aforementioned stakeholders of a company to be protected against fines, penalty compensation, and defence costs. Managers and owners can also be held personally liable, which puts your personal assets at risk. Management liability insurance also extends to protecting your wealth and your family’s security, not just your company.
While policies do vary in the benefits they provide, the most common coverage includes employment practice liability, directors’ and officers’ liability, crime, corporate liability, statutory liability, and defence costs.
- Employment practice liability: Provides cover for alleged employment breaches, such as discrimination, harassment, bullying, failure to promote, breach of contract, retaliation, and wrongful termination.
- Directors’ and Officers’ liability: Protects your proprietary limited company’s past, present, and future directors, officers, and managers against claims of wrongful acts, such as misrepresentation or breach of duty (subject to business size).
- Crime: Provides protection for your business when there has been a direct financial loss such as theft of money, securities, and property. This can include employee fraud or dishonesty, third-party crime, electronic and computer crime, destruction and damage of money. However, note that not all criminal activity is covered.
- Corporate liability: Covers costs that your business would incur if you need to defend and settle claims from outside parties alleging wrongful conduct, as well as an investigation into the affairs of the company.
- Statutory liability: Covers the cost of defence, fines, and penalties under some statutes
- Defence costs: Covers your legal costs if your business ends up in court.
Even if claims made against you and your business aren’t founded, the legal costs of defending these claims can be financially crippling for businesses and individuals. In fact, 1 out of 4 private companies have reported experiencing a D&O loss in the last 3 years. On average, the reported loss from such claims amounted to $387K, with the maximum loss being $17M!
Unfortunately, when it comes to management liability your turnover or industry won’t matter much - you will have legal obligations to hold yourself accountable. If you’re a business owner or senior manager it’s your responsibility to ensure that your business meets them. Management liability insurance is designed to ensure that even the most prepared and well-run businesses are covered for any potential mishaps.
This article originally appeared on Tudor Insurance Blog and has been published here with permission.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Tudor Insurance Australia.