Managers and directors are under a lot of pressure to manage a business effectively, and can be held accountable for their actions to a number of stakeholders. Partners, workers, clients, and stockholders may all be included. If someone within or outside the firm files a lawsuit against a corporate director or management, the legal fees and penalties might be substantial. If you do not have proper coverage, you risk losing not just your business but also your individual and family resources. Companies can be protected by a Management Liability insurance in the following ways:
- Statutory Liability protects the corporation, executives, and employees against claims arising from the issuing of a penalty notice requiring payment of a monetary or administrative fine or penalty imposed by an Act of Parliament.
- Crime Insurance – protects the firm from direct losses caused by employee theft, as well as a variety of other insuring provisions that protect the organization against third-party thefts.
- Directors’ and officers’ liability insurance protects directors and officers from lawsuits arising from management actions.
- Employment Practices Insurance protects the firm, its directors, officers, and workers against claims made by current, former, or future employees.
What is the purpose of Management Liability Insurance?
When you operate a business, whether as an owner, director, or manager, you have to make some major decisions. From hiring to determining where to invest your money, the danger of your choices being perceived as discriminatory or harassing is quite serious. Employment conflicts may be expensive, and lawsuits for wrongful dismissal are on the rise. Management liability insurance is thus a vital concern for every business owner, as it may help ensure that if you are accused of mismanagement, you have the financial power to fight for yourself in court and pay compensation if necessary.
What types of issues does this policy cover?
Under a Management Liability insurance, the main risk for construction companies is workplace health and safety prosecutions and investigations. It might take a year or two from the time of an accident for a prosecution to lead to a conviction. As a result of charges being brought on directors or officers abusing their duty under OHS regulation, huge legal fees are paid.
A serious injury claim
A subcontractor was seriously hurt and rendered paraplegic during the development of a commercial facility when a stack of rubble fell on him by mistake. A complete Occupational Health and Safety investigation and prosecution were conducted on the firm. The majority of the claims were strongly disputed and successfully defended by the Company.
Despite its efforts, the business was fined $150,000 and had to pay $100,000 in legal fees.
The expenses of fighting the prosecution and the related penalties are not covered by Public Liability insurance, and these charges would be added to any common law claim and workcover recovery claim made by the injured employee.
Social engineering fraud
Social Engineering Fraud is causing loss of money resulting in claims under the Crime section of the policy because cybercrime has recently been on the rise. However, construction companies are considered as easy targets due to typically poor cyber security policies in place and big payments flowing in and out of the company on a regular basis.
An insured construction business got letters from two distinct subcontractors informing them that their current account information could not be used to settle a number of unpaid loans. The Insured company’s accounts staff replied to the email to collect the right payment information and made payment into the amount specified in the email. One transaction was identified as suspicious by the Insured’s bank 1 week after payment since the name on the payment did not match the account name of the receiver, and the Insured was notified of non-payment of one of the invoices in question by the second subcontractor. The bank was unable to retrieve the funds from the dishonest third party. The policy’s Crime section had a Social Engineering extension that allowed the insured to claim up to $80,000 in lost funds, with a $10,000 cost for each transaction. Construction companies commonly face tax investigation charges as a result of the ATO’s regular targeting of the construction sector for audits.
Accusation of misleading and deceptive conduct
A group of four house owners filed a claim against the Insured Company and the Insured director because they were disappointed with the length of time it took for their new properties to be constructed. The firm and the director were accused of deceiving prospective clients by claiming that all new projects will be finished within 6 months. After a year, several houses remained unfinished. The Policy’s D&O and Company Reimbursement sections were activated, and compensation was granted to the Insured. The Company reached an out-of-court agreement with the clients for a total of $900,000. The total legal fees paid were $80,000.
A Management Liability insurance can also cover the following issues:
- Actions brought by regulators such as ASIC claiming inappropriate and criminal behavior
- Statutory breach of duty, which includes penalties and fines
- Unfair/unlawful dismissal, discrimination, harassment, and unjust failure to hire or promote are all examples of employment concerns.
- Directors/officers slander
- Intellectual property rights violation
- Employee fraud and theft, including theft of money and property
So, we talked about how the coverage offered by a Management Liability insurance is pretty broad and covers a variety of possible dangers you experience in the process of operating your company. Please keep in mind that not all liabilities by a director or officer have an impact on the firm. Managers and staff, in addition to directors and officers, may be held accountable. Because of the continually evolving environment, directors and officers are typically oblivious of their full regulatory duties. You should also know the distinction between Management Liability Insurance and Professional Indemnity Insurance. Management liability insurance protects you against accusations that come towards your business. While Professional Indemnity Insurance protects you from complaints made by clients and third parties related to the expert advice or services you have delivered.