What is Management Liability Insurance & what it covers | upcover

While Management Liability insurance may be less known than other types of policies, this could reduce your exposure to risk and protect your business against future claims.

So, what is management liability insurance? 

What does it cover, and does your business really need it?

That’s what we’ll tackle in this article. 

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What is management liability insurance? 

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Management liability insurance we offer is extensive and protects a range of types of businesses - business - whether a company, sole trader business or partnership and association. It also protects its owners (if you’re a trust it protects your company or individual trustee too!) - including directors, officers, senior managers, from claims or lawsuits that can arise from others’ alleging mismanagement during the running of the business’ operations. 

It typically includes coverage for employment practices liability, directors and officers liability, claims arising from breaches of legislation such as worksafe, or environmental laws, tax audits and crime.

Still wondering what is management liability insurance exactly?

Let’s take an example.

Let’s assume one of your managers had to let go of one of your employees. The employee decides to make a claim against your business, and  your businesses  management team for wrongful termination. They allege that they were fired without cause and that the management’s decision was arbitrary and unfair. This could be covered as a management liability claim or employment liability insurance cover.

Note that according to the latest figures, the average unfair dismissal payout is $8,704 and can go up to $79,250! This also doesn’t include the cost of appointing a lawyer to help you respond to and resolve the claim by your past employee which can cost from $20,000 to $500,000.

Now, as a small business owner or startup, this could significantly impact your operations and even cause bankruptcy in some cases. 

What else does management liability insurance typically cover?

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While not all insurance policies are created equal, here are covers that are usually included in management liability insurance. 

Insured person or Insured person or Directors & Officers Liability Insurance (D&O)

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Directors and officers liability insurance (also referred to as D&O insurance or Insured Person liability) is a type of insurance designed to protect the owner’s of the business and your senior  management team from financial losses resulting from legal actions taken against them for alleged wrongful acts while they are in their role at your business. 

It typically covers defence costs as well as any settlements or judgments, thus protecting the business owner or senior manager’s  personal assets.

Let’s take an example.

Let’s say you run a small business. From recruitment, sales, and marketing to finance and accounting, you’re juggling a million tasks at once. You have a business partnership that requires you to provide your services to your customers to a certain standard. You also need to only sell their products and not another’s. Unfortunately, your partner is threatening to break the contract and also sue you, for failing to comply with the agreement.

In this scenario, your D&O insurance could cover the legal fees associated with defending you, and the entity cover would respond to your business if it was also sued at the same time (this usually happens). It would also cover you for any fines or financial compensation that might be awarded following the lawsuit. What’s more, with D&O insurance coverage would protect your personal assets from needing to be used to defend the claim, or prevent you from going bankrupt, while the entity cover also ensures your company has the resources it needs to continue to operate, and also respond to the litigation so your business can defend itself.

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What’s not covered?

Most insurers will exclude the following from their insurance policies:

• Prior & Pending - circumstances or claims that were known prior to taking out the insurance.
• Personal Conduct
• Bodily Injury/Property Damage as this should be covered by a public and products liability insurance policy.
• Retroactive Date - things that occur before your listed retroactive date on your insurance policy. Don’t worry, if you notify upcover that you have had insurance in the past you will automatically receive an unlimited retroactive date.

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Employment Practices Liability Insurance (EPLI)

Employment practices liability insurance is a type of insurance coverage that protects employers against lawsuits brought by employees (whether full time, part time or casual), former employees, or even job applicants. This is a third cover of Management Liability Insurance that can protect your business from claims alleging:

• Discrimination
• Sexual harassment
• Failure to hire or promote
• Wrongful termination
• Invasion of privacy
• Infliction of emotional distress
• Any other employment-related misconduct

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For example, let’s say that one of your employees accuses one of their colleagues of sexual harassment. The employee filed a lawsuit against your company, alleging that the colleague’s behavior has been going on for a while, creating a hostile work environment, and that the company failed to address the situation. 

In that scenario, employment liability insurance could provide coverage for the legal fees associated with the lawsuit and any damages that may be awarded to the employee following the lawsuit. 

EPLI insurance is important as it can protect your company’s financial stability and allow you to focus on resolving the lawsuit without worrying about the cost of the legal defence.

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What’s not covered?

Generally speaking, the following isn’t covered by employment practices liability insurance.

• Losses relating to the underpayment of wages 
• Failure to pay employee benefits
• Bodily injury
• Intentional wrongdoing
• Safework investigations - as this could be covered under statutory liability insurance cover section

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Crime Insurance

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Crime insurance is designed to protect businesses against direct financial loss resulting from the illegal actions of employees or contractors. It typically covers a range of crime-related activities, including

• theft by third parties against your business. 

Do you need management liability insurance coverage?

Here are five reasons why every business needs management liability insurance coverage:

• Protection against lawsuits: As a small business, you’re exposed to lawsuits from employees or customers or business partners, which can be costly to defend against. Management liability insurance provides coverage for legal defence costs and any settlements or judgments, protecting you and your management team’s personal assets and ensuring your business can keep operating.

• Reduced financial risk: Small businesses are more exposed to financial loss resulting from legal action than larger businesses because they’re not as financially stable and not as prepared. By having management liability insurance, you can significantly reduce your exposure to financial risk.

• Protection of directors and officers: As discussed in this article, your directors and officers can be held personally liable for wrongful acts. Management liability insurance can protect them from personal financial loss and ensure your company keeps attracting top talent.

• Access to legal expertise: Management liability insurance policies often comes with access to legal experts at discounted rates negotiated by insurance companies for your benefit. This is extremely valuable as it can help you navigate the legal system and protect your company, assets, and reputation.

• Compliance with laws and regulations: Small businesses, like any business, are subject to various laws and regulations. Non-compliance can result in legal action and hefty fines. Management liability insurance can cover you for legal costs and penalties associated with regulatory investigations.

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