Management Liability Insurance – What you should know ?

Management Liability Insurance – What you should know ? Thumbnail Image

Operating a business assumes a variety of liabilities and risks. While you may personally comply with all the laws relevant in running the business, it is impossible to control the actions of others representing the company. Yet, the actions of employees, directors and managers and the financial consequences of these actions will often be a burden that your business must bear. Management Liability insurance is crucial to protect the liability of managers, directors, and employees of the business who breach their duties and responsibilities. 

Let’s say that a former employee believes they have been unfairly dismissed under the Fair Work Act. They claim that the dismissal is unjust or particularly unreasonable, and they are seeking remuneration and reinstatement of their former position. The costs of paying these damages to the former employee can be substantial and have a significant impact on the operation of your business. Depending on theManagement Liability insurance policy, legal defence costs and compensation costs may be recoverable, and your business and personal assets will be protected. 

Types of Cover

Employment Practice Liability

Employment practice liability (also known as EPL) includes cover for any compensation that is awarded for an action by an employee against the business for a breach of its duties. This includes: 

  • unfair or wrongful dismissal
  • bullying 
  • discrimination. 

Cases involving these breaches are increasingly common in the media, shining a negative light on many businesses and tarnishing previously reputable brand names. Public stories of these actions for employment breaches can have great financial risk regarding payout, but also damage the reputation of your business in the eyes of the public. Having a policy in place that covers the time-consuming and expensive legal procedures of defending an action for employment breaches is crucial to minimising the financial and reputation-based risks to the company.

Directors’ and officers’ liability

This cover is essential to protecting the past, present and future directors, officers and managers of the business. A range of duties exist for these roles, both within the Corporation Act and at common law, that if breached, can have significant penalties for the company. These duties include:

  • Duty to avoid conflicts of interest
  • Duty to act in good faith and for a proper purpose
  • Duty to exercise care and diligence
  • Duty to avoid insolvent trading 

The volume of duties undertaken as director or manager of a business is immense, being under significant pressure to ensure that they comply with a range of legal obligations. Having the proper policy in place is critical to protecting the personal liability of directors and managers who have breached these duties.

Crime Insurance Cover

Where an employee or third-party, such as a contractor, has committed fraudulent acts, crime insurance cover is crucial for the protection of your business. This may include:

  • Internal crimes: an employee stealing money or inventory
  • External crimes by a third -party: a third-party falsifying invoices, counterfeit or computer crimes

It is important to note that not all crimes will be covered through crime insurance cover. 

Corporate Liability

Also known as company liability or entity liability, corporate liability ensures that your business is covered for defending actions from external parties claiming wrongful acts. While directors’ and officers’ liability covers claims made against directors or officers, corporate liability is essential for actions made against the company as a whole. Corporate liability covers issues dealing with:

  • Workplace injuries
  • Breach of conduct 
  • Investigations into the affairs of the company
  • Shareholder disputes 

Statutory Liability 

Statutory liability cover is essential to cover the cost of fines and penalties awarded against your company. This cover is especially important, considering the prevalence of incidents occurring in the workplace and the strict requirements imposed by the Work Health and Safety Act.  

Defence Costs

Management Liability insurance policies can also cover the legal costs of defending your business if it does go to court. 

Is Professional Indemnity insurance enough?

Purchasing Management Liability insurance is certainly necessary even if you are covered under Professional Indemnity insurance. Professional indemnity only covers your business when it has erred in the professional advice provided and a client wishes to claim compensation for the losses suffered as a result of this advice. Management liability is more focused on providing cover for claims against the operation or management of the business. 

As a result, Management Liability insurance is an essential cover that should be purchased separately to Professional Indemnity insurance.

What level of Management liability insurance is suitable?

There is no strict answer to what level of Management Liability insurance is suitable for your business. It will depend on the nature and services offered by your business and the individual necessities of the company. While it is important to purchase Management Liability insurance, it is just as important that the specific needs of your company have been tailored to. 

Not sure what cover is right for you? Contact Cerberos Brokers today for professional advice on what management liability cover is essential for the operation of your business. 


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