The importance of management liability

The number of workers raising issues with unfair dismissals is surging in the wake of shutdowns due to coronavirus. It’s never been more important for businesses to have management liability insurance. April this year saw a 65 per cent increase in cases brought to the national industrial tribunal than the same month in 2019.

As the owner and operator of a small business, a lot of responsibilities are on your shoulders. Not only do you have employees, suppliers and clients relying on the success of your business, but you may also be held personally liable for allegations of mismanagement, wrongful dismissal, employee fraud, non-compliance with workplace health and safety (WH&S) requirements, and even the costs of a tax audit.

Why is management liability insurance important?

Management liability insurance is your best protection against mismanagement allegations made against you as the owner and operator of your small business. Importantly, it will help keep your personal assets safe from any claims against you.

Without management liability insurance in place, any claims of mismanagement successfully upheld against you could not only cost you your business, but also put your personal assets under threat.

What does management liability insurance cover?

While management liability policies differ slightly between insurance providers, they generally cover the legal costs associated with defending yourself against allegations of mismanagement of your company, harassment, wrongful dismissal and fraud.

The four areas usually covered by management liability insurance are:

  • Directors and Officers Liability – Cover for loss in respect of any claim for an error, act, omission or negligence committed by your Directors & Officers
  • Employment Practices Liability – Cover for employment related wrongful act
  • Statutory Liability – Cover for formal or official investigations by regulatory, governmental or authorised institutions
  • Company Liability – Cover for loss to the company for claims due to an error, act, omission or negligence by the company

What are the most common types of claims?

Again, depending on the specifics of your management liability policy, you may be protected against losses from claims associated with actual or alleged mismanagement of the company whilst performing your duties for the business.

A management liability policy may also protect you against the costs associated with employee allegations of bullying and harassment, unfair and wrongful dismissal, and discrimination.

Many management liability policies also provide financial protection against employee theft, fines and penalties related to OHS, defamation allegations, and costs associated with regulator investigations and tax audits.

How is management liability cover different to professional indemnity?

It’s important not to confuse management liability cover with professional indemnity insurance – they are two different types of insurance and play different roles.

Management liability essentially covers you against allegations of mismanagement, while professional indemnity insurance covers against damages arising from professional services or advice you have provided.

Think of it like this: professional indemnity insurance covers the services and advice provided by your company, while management liability insurance covers you in running your business.

I’m a straight shooter. Why do I need management liability cover?

The vast majority of small business owners and directors run their companies with the noblest of intentions and would never knowingly engage in fraud, harassment, discrimination or any other dishonest management practices.

However, even an allegation of mismanagement could come with a heavy legal defence bill – and unfortunately your innocence doesn’t necessarily excuse you from those costs. It’s possible that in the instance of court proceedings a judge could order your false accuser to cover your legal costs, but that’s far from guaranteed – and may not apply to matters that don’t make it into a court of law. In reality, the best protection is a good management liability insurance policy.