Management Liability is a packaged product made up of several coverage sections customised for directors and officers of private companies. It is often referred to as “Directors & Officers Insurance for Private Companies” but it is actually more than that, as it packages up several important coverages in a single product. Management Liability Insurance policies are broken down into several sections that cover off a range of risk exposures affecting the directors of private companies. These include:
What is Management Liability Insurance?
What does Management Liability Insurance Cover?
Main Coverages
➤ Management Liability / Directors and Officers Liabilities
This section provides cover for the mismanagement of the company resulting in a legal action (lawsuit) against the company’s directors & officers.
➤ Corporate Liability / Company Reimbursement
This section of the policy provides cover for the same claims scenarios as Section 1 (ML/D&O) but is only triggered when the Company has had to indemnify (pay) a Director/Officer for a claim.
➤ Statutory Liability / Fines & Penalties
This section provides fines and penalties cover for the directors/officers when there has been an alleged statutory breach. Examples of these are workplace health & safety, employment practices laws, workers compensation laws, environmental protection authority, spam and privacy laws, industry specific rules & regulations, etc.
➤ Crime Protection
Management liability insurance covers a range of crime related occurrences when there has been a direct financial loss. This can include employee fraud or dishonesty, third party crime, electronic and computer crime, destruction and damage of money, crime by shareholders, etc.
➤ Employment Practices Liability (EPL)
This section covers the directors/officers for an alleged Employment Practices breach. These can include wrongful/unfair dismissal, harassment, discrimination, bullying, whistle-blower, etc.
Additional Coverages
➤ Tax Audit Costs
➤ Identity Fraud Expenses
➤ Inquiry / Prosecution / Crisis Costs
➤ Pollution Defence Costs
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Claims Example
Minority Shareholders
Proceedings were commenced by the minority shareholders against a clothing store chain and its majority shareholder. The minority shareholders alleged that their interests had been unfairly prejudiced by a recent share option, which was uncommercial and diluted their interests. An order was sought that the majority shareholder or the business acquires their respective interests at a specific price per share.
The matter settled on the first day of hearing on the basis that the majority shareholder agreed to buy the minority shareholders’ interests at an agreed price on a without prejudice basis. The clothing store chain was advanced Defence Costs and incurred a total of $725,000.
Breach of Contract
A company is sued by its former agents after it terminates their contracts in order to replace them with fulltime staff. The agents sue for non-payment of commission. Overall settlement and defence costs reached 6 figures.
Breach of the Work Health and Safety Act
A construction company faced allegations that it had failed to ensure that employees of sub-contractors were not placed at risk of injury from the use of a mobile crane, in breach of the Work Health and Safety Act. The construction company was investigated by the relevant authorities and a claim was filed.
The construction company incurred a fine of $100,000 and defence costs of $150,000.
Licensing breach
An investigation finds that a hotel has breached the maximum capacity specified by its Liquor Licence. A 5 figure penalty is payable.
Licensing breach
A company is prosecuted following an accidental breach of regulations concerning a protected wetland site. No damage is identified and there is no finding of a deliberate contravention or motivation to save costs. While a 7 figure corporate penalty is possible, a guilty plea for the accidental breach results in a 5 figure penalty.
Wrongful dismissal
A senior employee is dismissed after lodging complaints of bullying and aggressive conduct by the managing director. Complaints are also made of racial discrimination and disability discrimination. Action is commenced in the Federal Court and the matter is settled for a 6 figure sum.
Unfair dismissal
A pregnant employee is dismissed for non-attendance. The manager who dismissed her says he was not aware of her pregnancy – although the company fails to reverse this decision when the employee produces confirmation from her G.P. The case is settled for a 5 figure sum.
Discrimination
A female employee is made redundant. She complains her line manager constantly belittled and insulted her in front of colleagues with cutting remarks and offensive comments. The case is settled for a 4 figure sum.
Duress
An employee complains of being asked to form an unacceptably close relationship with a client. The employee claims that once they refused, they were dismissed. The case is settled for a 5 figure sum.
Fraud by a lone employee
An employee who processes invoices also has access to the supplier creation system. The employee sees that when invoices are approved for payment, the financial controller examines the largest payment in detail and then signs the rest. The employee creates a false supplier and makes many small payments totaling thousands of dollars over several months.
Fraud by internal collusion
A quality control manager labels undamaged goods as substandard to be marked for disposal. His accomplice, the company’s stock manager, arranges for the “faulty” goods to be removed from the premises and the goods are sold off in pubs and on internet auction sites.
Fraud by an employee colluding with customer
An employee is empowered to negotiate discounts with clients up to 20%. He approaches his closest clients and agrees that their current discounts of 5% can be quadrupled on the understanding that the additional discount is split between client and salesman.
Claimants
** These claims examples have been provided by AIG Australia Limited and Chubb Insurance Company of Australia Limited **
What’s Next?
Let us work with you on an insurance solution that best suits your business needs.
Quote Requirements for Management Liability Insurance
Please complete this Proposal Form and return to our brokers below to arrange a Management Liability Insurance quote. (Download Here)
Why work with KBI?
1. Assistance with the submission process
so the insurers have the necessary information to properly underwrite and quote.
2. Quote comparison
we help clients make an informed decision by comparing the quotes (including plain language) so clients know what they are buying
3. Limit analysis
we can assist clients with providing additional information to help decide what is an appropriate limit on their Directors and Officers Insurance
4. Insurer meetings
can improve the quoting process as insurers become more familiar with the company and the key executives
5. Updated information
we focus on Directors and Officers insurance so we continually provide updates to our clients and contacts through our D&O blog and newsletter
6. Claims management
is crucial for Directors and Officers policy holders. Our D&O team not only has experience managing small and large D&O Claims, but we are a unique make up of senior brokers, lawyers and past ASX advisors, giving us a robust understanding of the process
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