05 November 2020

5 cases where management liability provided critical insurance for businesses

Business owners and managers can be held responsible if an issue concerning the company becomes the subject of a legal action. This can involve costs in defending a case, and more if they are found liable, which is why management liability insurance offers critical risk support. Here we profile 5 cases where management liability insurance provided essential protection in a number of different business situations.

 These examples of management liability insurance claims cover a variety of cases, with the value of the claims involving thousands to hundreds of thousands of dollars. Without insurance a liability claim can sink a business ‒ and because owners, directors and managers are held personally responsible, the personal assets of key business management, such as home or savings, can be claimed to pay costs.

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According to Dual, one of Gallagher’s Insurance partners, the following are real life examples of management liability insurance claims where the policy successfully met the claim.

    1. Employee termination that led to an employment liability claim

A food manufacturing worker brought a claim against their former employer, arguing that the termination process had been unfair since the worker had not been involved in any misconduct.

Facing reputational damage if the claim proceeded to a Fair Work Commission hearing, the food producer called on the employment practices liability provision in their industrial special risks insurance cover to pay for legal costs and an out of court settlement.

Value of the claim: $56,000.

    1. Misleading advertising of products and services claim

A competitor brought a legal action against a machinery manufacturing company, claiming it had used online advertising to misrepresent its ability to provide the same products and services.

Rather than becoming embroiled in a legal wrangle over the allegation the manufacturer made a settlement payment, with the management liability claim covering costs under the entity provision.

Value of the claim: $42,000.

    1. Losses from employee theft recovered through insurance cover

A food wholesaler with millions in turnover discovered that over the course of a year an employee had embezzled $400,000 through ploys such as voiding invoices and diverting the funds to their own bank account.

The wholesaler was able to claim for reimbursement of lost funds under the crime provision in its management liability cover.

Value of the claim: $430,000.

    1. Costs of a tax audit mandated on a business supported under a special provision in management liability cover

A hotel with a number of operations was subjected to a Tax Office audit in order to clarify returns lodged under different entities. Fortunately the hotel had purchased a tax audit extension on its management liability cover, which paid the costs of engaging an accountant to respond to ATO requirements.

Value of the claim: $40,000

    1. Costs of defending legal charges statutory covered by liability policy

An import-export company engaged in trade with China was investigated by Australian Customs and charged with obtaining financial advantage by falsifying documents and failing to pay duties. With serious charges to answer involving steep penalties, under their management liability cover the principals were granted statutory liability indemnity to pay defence and appeal costs.

Value of claim: $150,000.

The value of management liability protection for business

Businesses of any size have owners, directors and senior managers subject to more than 700 federal, state and territory laws ‒ so the scope of liability is very wide, covering financial activities, regulatory compliance, operational factors, employment practice and workplace condition. Management liability is the insurance protection for these types of risks.

In Australia litigation across these areas has increased, with a growing frequency of employment practices liability claims - including allegations of wrongful dismissal, workplace harassment, discrimination and failure to maintain a safe workplace.

Management liability insurance provides broad cover for a range of risks or exposures, enabling you to answer a case without significantly disrupting normal business activities and draining costs.

Find out more and get advice

Your insurance broker can help you understand the business risks your owners, directors and management team face and can then recommend the management liability insurance cover that best meets your needs.

Connect with an expert

 

Further reading

Management liability insurance

How management liability insurance could help your business


Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient’s industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers’ control.

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