What is Management Liability Insurance?
Management Liability insurance covers the business against the mismanagement – the risks and exposures of running the company – for losses incurred by third parties.
While this type of insurance is used for private company directors, for public company directors, it is called Director & Officers insurance. Generally speaking, the cover is the same and protect both the financial security of the company and the personal wealth of its directors and management.
This insurance is often confused with professional indemnity insurance which covers the business against the professional advice it provides when a financial loss is suffered by a third party. The key difference in Management Liability insurance cover is mismanagement.
What does management liability insurance cover?
Management liability insurance covers against –
- Employment issues – OH&S, unfair dismissal, or sexual harassment,
- Business issues – defamation, statutory breach of duty, acts of misconduct, allegations, legislative breaches, including statutory fines and penalties.
- Criminal issues – losses arising from dishonest acts such as theft and fraud by employees, including theft of stock.
There are many insurance companies and brokers that can provide Management Liability insurance. International Accounting Solutions would be happy to recommend one – contact us via the form on this page.
Do I need it? Why is Directors & Officers insurance important?
This insurance is important as it protects the business and its directors – executive directors, non-executive directors, the company secretary, executive officers and employees – who are responsible for the management of a business.
Threats to the business can come from the more expected business associations such as your employees, customers or suppliers but can also come from competitors, liquidators, administrators, government regulators or investors.
As Management Liability insurance is becoming more relevant for modern business, here at International Accounting Solutions, we’re getting asked a lot about its significance for businesses.
Here are our 5 top reasons why your business should consider Management Liability insurance:
1. Lowers your risk
Management Liability insurance closes your risk gap by protecting the business and its assets as well as the personal assets of the directors and management.
Professional indemnity insurance, which covers the personal liability costs resulting from an executive’s activities, may not apply to every situation, especially where mismanagement has occurred. In some management liability cases, the financial liability is the sole responsibility of that executive.
In the role of a company director, directors are responsible for the risk management of their company. It is not just large companies that are exposed to these risks, small and medium-sized businesses are exposed.
2. The increasingly onerous duties placed on directors and officers
Private companies and their directors continue to face greater corporate governance with increasing regulatory surveillance of the management of their business activities. ASIC have also begun to tighten their governance of these duties.
Given the extensive list of directors’ duties, responsibilities and obligations, plus time constraints and their susceptibility to proceedings and financial exposure, management liability insurance plays an important role in protecting them personally. If a director or officer is found to have breached a duty or failed to meet an obligation, this insurance covers against loss suffered by them as a result.
The company is also protected against loss suffered, as a result of reimbursing the director or officer for the claims against them. These costs can include compensation to an aggrieved party, the fine or penalty, legal costs as well as the legal costs of the other party, and interest on any of these costs.
3. The potential loss grows as the business revenue grows
Larger companies or smaller businesses whose revenue has grown, can incur larger losses through mismanagement. Revenue typically indicates risk exposures.
4. Attract top-tier talented directors to your business.
Your business wants to attract directors and management who are visionary and show initiative, with an ability for creative business strategy – the very skills that may be vulnerable to risk.
As your directors and officers are personally at risk to incur lawsuits, covering the business with Management Liability insurance may attract top-tier talent and protect them against claims as a result of their actions or decisions.
5. The insurance covers past directors from future dealings
Depending on the company size, Management Liability insurance can protect all your private company directors – past, present, future directors, officers, and managers against claims, such as statutory breach of duty or acts of misrepresentation.
Want to know more about the role of Management Liability insurance or the risks that may affect your business? Call us on 1300 319 870 or contact us today.
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