Management Liability Insurance is a packaged policy designed to protect private companies from the expenses involved in defending a claim and any damages / payouts awarded as a result of business activities.
Generally, management liability insurance will include the following cover:
- Directors and Officers Liability – Provides cover for claims against directors and officers for any actual or alleged wrongful acts in the performance of their duties.
- Corporate Legal Liability (entity cover) – Provides cover for claims against the company for any actual or alleged wrongful acts.
- Statutory Liability (including OH&S) – Provides cover for investigations, defence and possible penalties that may be awarded for a statutory breach. It’s interesting to note that there are over 5,000 individual legislative provisions that can result in fines or penalties and 700 provisions that can find a Director personally liable.
- Employment Practices Liability – Provides cover for actual or alleged employment related wrongful acts by or against employees. It’s worth noting that over 15,000 unfair dismissal cases were brought against SME’s in 2011 with the average cost of each case being $50,000.
- Employee Dishonesty – Provides cover for direct financial loss to the company resulting from a fraudulent or dishonest act of an employee.
- Kidnap & Extortion – Provides cover for loss arising from kidnapping, hijacking, wrongful detention, extortion, cyber extortion and political threat.
Employment Practices Liability
Who: Retailer with 15 staff and $6m turnover
What happened: An employee lodged a complaint with Fair Work Australia alleging unfair dismissal. The insured dismissed her because they suspected her of stealing, however the allegation was unproven.
Outcome: Fair Work Australia deemed the insured was liable for failing to follow the correct process in terminating the claimant. The claim settled for $80,000 in compensation
and $55,000 in defence costs.
Who: Manufacturer with $12M turnover
What happened: An employee was injured onsite whilst operating machinery, resulting in their finger being amputated. A few months later a second incident resulted in another worker being injured.
WorkSafe investigated and issued proceedings against the company & Directors for alleged breaches of OH&S Act 2004.
Outcome: The Insured was found to have breached the OH&S Act. The company was fined $98,000, the Director was fined $26,000 and legal costs totalled $150,000.
Who: Catering company with $8M turnover and 25 staff
What happened: The company noticed insufficient funds to pay creditors and after engaging an expert accountant, identified duplicate payments and account abnormalities. Further investigation revealed that an employee had altered the accounts and was transferring funds into their personal account. Background checks revealed the employee had a history of fraud.
Outcome: The insurer engaged a fraud investigator to quantify the loss and establish how it occurred. The insurer reimbursed the $500,000 loss to the Insured, plus the fraud investigators costs of $30,000.