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What management liability covers: 5 business examples where it was vital

Published 30 June 2022

Management liability insurance offers umbrella cover for a range of business management risks and responsibilities applicable to small to large businesses, which is why it’s considered a business insurance essential. To illustrate the scope and flexibility that management liability cover provides we present 5 real life business examples of claims from vastly different businesses and situations. 

 



Costs of protracted legal defence regarding employee death
Industry sector: construction – excavation company
Management liability cover: directors and officers’ liability
Claim type: workplace health and safety
Business’s employees: approx. 64
Annual revenue: $4million+

When an employee of an excavation company was fatally injured on site after accidentally digging into electrical cabling WorkCover mounted and investigated the circumstances. As a result of the findings the Office of Public Prosecution brought a charge against the excavation company, claiming it had breached various sections of the Work Health and Safety Act.

The business vigorously defended the action for three years and the Office of Prosecution eventually dropped the charges but expense costs of $343,000 were incurred during this time. Having management liability cover enabled the excavation company to combat the charge and maintain an ultimately successful defence.

Regulatory penalties and costs covered 
Industry sector: food service
Management liability cover: statutory liability 
Claim type: breach of the Food Safety Act 
Employees approx. 22
Annual revenue: 2.5 million+

A state authority audit conducted on the premises of a food service business found that it failed to comply with Food Standard 3.2.2 general requirements on a number of counts. The premises did not meet cleanliness and maintenance requirements and neither did the food preparation equipment. Also the business was found to be harbouring pests on the premises, having failed to prevent pests entering and in not eradicating the pests.

The business was ordered to pay an $80,000 fine plus costs of around $1500, which were covered by its management liability insurance under its statutory liability component.

Employer penalised for inaction on harassment
Industry sector: manufacturing
Management liability cover: employment practices liability 
Claim type: failure to respond to complaints of employee harassment 
Number of employees approx. 17
Annual revenue $7 million+

An employee of a glassware company for four years informed her manager that she had become the target of harassment by another worker. She complained about this person’s behaviour which spanned the past 12 months and allegedly took the form of repeated name calling, small actions that deliberately impeded her work, and intimidation.

The employee complained to the manager on a weekly basis but no steps were taken to address her grievances with the other employee’s behaviour. Eventually the victim took legal proceedings for harassment against both the offending employee and the management for failing to address the allegations which had been raised on numerous occasions.

The case was settled for $57,000 for the victim and defence costs of $23,000 were incurred by the employer. The company’s management liability insurance covered the damages plus costs under the employment practices component of the policy.

Employee crime investigation and prosecution costs covered
Industry sector: manufacturing
Management liability cover: crime:
Claim type: employee theft
Number of employees: approx. 86
Revenue $7 million+

On discovering there was no accounting for stock transferred from its factory to its sales warehouse, an air conditioning manufacturer any asked its branch manager to investigate the leakage. The manager failed to identify the issues while the stock loss appeared to increase, then abruptly resigned. It was discovered too late that the manager had stolen stock worth over half a million dollars.

The manufacturer engaged an external investigator who confirmed the $500,000 loss figure. The company sought to recover the lost revenue but the thief had already disposed of the goods and the funds from their sale. The company’s management liability paid $70,000 towards  the loss, since recovery of stolen money isn’t included in the cover, and $30,000 in legal costs.

Safeguard against social engineering cyber loss 
Industry sector: distribution centre
Management liability cover: crime
Claim type: social engineering fraud
Number of employees: approx. 250
Annual revenue $30 million+

The accounts controller for a distributor of component parts was unwittingly the target for a social engineering scam, a common cyber risk. The accounts person was responsible for making regular payments to the overseas vendors from which the distributor purchased products for resale in the United States. After many months of working with one particular vendor and receiving regular shipments the controller received an email that appeared to come from the vendor contact. 

The message claimed that the vendor’s bank was having trouble receiving payments and asked if the next payment could be made to a new bank. Due to the vendor’s overseas location verification was a challenge and after the supposed vendor applied some pressure the controller paid the invoice via wire transfer. The loss was discovered when the real vendor chased up their unpaid invoice. 

The business’s management liability insurance covered the bogus payments which amounted to $80,000 and legal costs of $25,000.
 

Find out more about how management liability cover could help your business

As your insurance broker, we can help to mitigate your risks and minimise what can be a significant financial blow to you or your business should the unexpected happen. If you would like to know more or discuss this further, please contact one of our experts. 
 

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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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