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Have you considered Management Liability?

Sep 8, 2016

By David Kimber – AustBrokers Comsure Senior Insurance Adviser

Pty Ltd companies need insurance coverage for protection against a wide range of perils.

Why take a chance that you might face a financial loss as a result of any event that can be insured?

Management Liability Insurance – Why do Companies need this cover in their portfolio?

  • Management Liability Insurance covers the exposures & risks that may come with managing a business.
  • Directors and officers face both personal & corporate liabilities in managing a Company and can be held personally liable.
  • Claims can often arise from actual or alleged breaches of the Corporations Act, which regulates company law in Australia.
  • Where Professional Indemnity Insurance covers the activities of the company, Management Liability Insurance focuses on the act of running a company. (i.e. Management Wrongful Acts)

Where do claims come from?

  • Breaches of director’s duties and/or fiduciary duties, including breach of trust
  • False, misleading & deceptive conduct by directors/officers and employees
  • Actions alleging improper and illegal conduct
  • Statutory breach of duty i.e. under legislation
  • OH & S prosecutions and inquiries
  • Employment Contract related issues (Bullying/Harassment, Unfair Dismissal, Discrimination)
  • Defamation by directors/officers
  • Breach of intellectual property rights by directors/officers
  • Employee theft, including theft of money and property
  • Statutory fines & penalties
  • Taxation investigation costs
  • Crisis Containment costs relating to Public Relations issues

What does Management Liability Insurance Cover?

  • Damages and claimant costs awarded against you
  • Defence (i.e. legal) costs
  • Investigation costs
  • Civil fines & pecuniary penalties.

Who can bring an action against a company, its directors, officers and employees?

  • Regulators (e.g. ACCC, ASIC & the ATO)
  • Employees
  • Competitors
  • Creditors
  • Shareholders (especially minority shareholders)
  • Clients
  • Liquidators/Administrators

Actual Claims Examples:

Example #1
Coverage Section: Directors & Officers Liability
Claim: Work Health & Safety Claim
Number of Employees: Approximately 64
Annual Revenue: More than $4 million

    • An employee of an excavation company was fatally injured after accidentally digging into electrical cabling. WorkCover investigated the circumstances surrounding the fatality and the Office of Public Prosecution served a Charge Sheet and Summons on the excavation company, alleging the company had breached various sections of the Work Health and Safety Act.
    • The organisation vigorously defended the action for three years and the Office of Public Prosecution subsequently discontinued the matter; however Defence Costs of $343,000 were incurred.

Example #2
Coverage Section: Statutory Liability
Claim: Negligence
Number of Employees: Approximately 40
Annual Revenue: More than $14 million

    • A commercial construction company was investigated following the death of an employee, who had fallen from the eighth floor due to not wearing a safety harness. The investigation established that the employee’s death would have been prevented if he had been wearing a safety harness as required by law.
    • The construction company was fined $110,000 for failing to keep a safe work environment and incurred legal costs of $34,000.

Example #3
Coverage Section: Employment Practices Liability
Claim: Unfair Dismissal
Number of Employees: Approximately 56
Annual Revenue: More than $8 million

    • An employee of a transport company wrote numerous negative comments about the company and his fellow employees on a social media site. The employee was dismissed without notice when the company was notified of the comments made. In response, the employee commenced Unfair Dismissal proceedings with the Fair Work Commission.
    • The case settled for $26,000 and incurred defence costs of $17,000.

Example #4
Coverage Section: Employment Practices Liability
Claim: Discrimination
Number of Employees: Approximately 76
Annual Revenue: More than $4 million

    • The claimant was an employee of a food packaging company. She alleged she was victimised and discriminated against by the food packaging company on the basis of her having a physical disability. The claimant lodged a complaint with the Australian Human Rights Commission.
    • The matter was settled on a commercial basis. The employer’s defence and settlement costs came to more than $80,000.

Example #5
Coverage Section: Crime
Claim: Employee Theft
Number of Employees: Approximately 70
Annual Revenue: More than $5 million

    • A delivery driver for a flour mill entered into arrangements with customers of the mill to sell them flour at a discounted rate of half the price the mill was offering. The delivery driver edited his logbook so the additional pallets of flour he delivered were not noticed. The driver continued his scheme until a dissatisfied customer advised the company of the arrangements in place.
    • The company implemented an investigation, which determined the delivery driver had taken approximately $450,000 worth of flour. The driver was charged and the investigation process cost the company $60,000.

Claims information has been provided by one of our major insurers. If you would like more information on Management Liability, call AustBrokers Comsure on 1800 122 1940.

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