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Management liability business insurance Q&A: 5 common questions

Published 04 August 2022

Businesses that meet the criteria for management liability insurance can benefit from the broad coverage across various business functions that this packaged policy provides. It’s considered a must-have for small to medium sized businesses. So who’s eligible and what protections can they receive? We unpack 5 common questions about management liability insurance to help you decide if it’s right for your business.

Management liability insurance provides business protection for businesses with annual revenue of less than $100 million under a packaged model with multiple key coverages plus optional add-ons. Sums insured are based on turnover and total assets (which become relevant in the case of insolvency).
 

 

1. Q: What does management liability cover and why would a business need it?
A: The core protections a management liability (ML) package delivers and the reasons why a business might need them include

  • directors and officers’ liability – for losses arising from management decisions or omissions. Claims may be brought by regulators, investigators, shareholders, creditors, customers or competitors
  • employment practices – for infringements of employment law. Claims may be brought by employees or third parties on grounds of discrimination, unfair dismissal, bullying or harassment
  • crime – for losses due to theft. Claims may be triggered by employee or third party theft or computer fraud
  • statutory liability – for costs associated with regulatory investigations or failing to meet requirements. Some states allow claims for fines or penalties related to workplace practices – but recent changes to legislation exclude them in New South Wales, Victoria and Western Australia
  • cyber – for costs of a security breach. Claims may cover ransom demands or fines, loss of systems or penalties imposed by regulators.

In addition to these, businesses can opt for not for profit protections, kidnap and ransom losses, or other forms of cover that may be available as options under the terms of the ML package. 

2. Q: Does management liability cover multiple business entities with the same owner?
A: Essentially this depends on the business structure: management liability provides cover for subsidiaries but not generally for joint ventures or sister companies – but extended cover may be considered under certain conditions where the ownership/management structure follows a top-down model.

3. Q: How is management liability insurance different from standalone directors and officers’ liability cover?
A: Management liability protects the business as an entity rather than senior managers themselves. This provides cost benefits to smaller companies with 1 or 2 directors who are also shareholders but still need insurance cover for legal cases and damages for the business. Larger businesses may benefit from having the additional specialised protections for executives that directors and officers’ liability insurance provides, particularly in respect of the ability to make claims against senior executives’ personal assets.

4. Q: How is management liability insurance different from professional indemnity cover?
A: While management liability protects businesses of any kind from of claims losses arising from executive decision making, professional indemnity applies to businesses that provide a service in cases where dissatisfied clients bring a legal claim, covering the costs involved. For example, and accountancy firm that provided the wrong tax advice to a client would be subject to a professional indemnity claims, and if the client was a business whose directors acted on that wrong advice which resulted in them failing to meet their taxation obligations they would be subject to a management liability claim.

5. Q: What cyber protections does management liability insurance provide?
A:
While not as comprehensive as stand-alone cyber security cover, a management liability  package has cyber cover designed to protect SMEs for systemic losses such as theft of client data, regulatory penalties and access to an expert response team to professionally manage to a security breach or incident to a $100K limit.
 

Tips for working with your broker to get the cover your business needs

Since management liability insurance is a blanket business protection that can be customised according to individual needs it’s critical that your broker understands your business structure, operations and exposures, as well as its financial position. 

To assist with providing the information underwriters look for

  • prepare a diagram or similar explanation of your business’s structure
  • be completely transparent about your financial position (audited statements preferred)
  • provide a breakdown of your anticipated revenue streams
  • for start-ups, provide a detailed business plan
  • be willing to discuss your employment practices resources
  • have documented cyber security protocols
  • know what business risks need protecting. 

This helps your broker with deciding what cover is essential and which insurers are most suitable. 
 

Further reading

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Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective.
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