If you're running your own business and think that management liability insurance is bells and whistles cover that only applies to large corporates, we've got 5 compelling reasons why you should change your mind. Anyone in business faces a range of risks that need to be managed, and this applies particularly to business owners, managers or boards – including charitable organisations and family businesses where your relatives form the executive committee.
How management liability risk arises for small to large business operators
1. If you are a business owner, or a director or officer (executive/manager) of the company, you can be held liable and made to pay for a vast range of mistakes or failings, even if you didn't commit or even know about them.
2. Legal actions can even be brought by your own company or its other directors, or regulators such as the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA), employees, creditors, competitors, customers or in worst case scenarios administrators or liquidators.
3. Management liability insurance safeguards you against the worst fallout from these kinds of issues, which could include any of the following
- You could be held responsible for one of your staff harassing or bullying a colleague without your knowledge
- You could face a case of wrongful dismissal brought by a disgruntled employee
- A staff member might steal from you
- You could be the subject of an ATO audit and incur expenses relating to inappropriate tax avoidance or tax audit costs
- Your computer system could be hacked and sensitive information lost, and if your insurance policy doesn't include cyber risk protection you could be held liable
4. The legal costs involved could easily run to hundreds of thousands of dollars, and you could wind up with your home and other assets being garnished to pay them.
Management liability insurance protects individuals against being compelled to pay compensation, fines or penalties, as well as the legal costs of someone bringing a claim against you or your company.
5. The safeguard of management liability insurance is important because a company’s past and present board members are legally liable under a range of state and federal statutes. These include employment, work, health and safety laws, and environmental protection.
How management liability insurance differs from professional indemnity coverProfessional indemnity insurance covers your business for the services or advice that you provide to your customers or clients and management liability insurance relates issues arising from the running of your business. A management liability policy protects your business and personal assets against legal costs for allegations of mismanagement, misconduct or legislative breaches.
It’s important to understand the distinctions in the insurance cover and this is where your insurance broker plays an important role. As a trusted advisor, your broker helps identify what the indemnity amount should be, including the type of business and the risks that might apply
As your insurance broker, we can help to mitigate your risks and minimise what can be a significant financial blow to you or your business should the unexpected happen. If you would like to know more or discuss this further, please contact one of our experts.