Not so long ago only larger companies saw the need for Management Liability insurance – the umbrella term for a range of covers that can include Directors and Officers (D&O) Liability, Employment Practices Liability (EPL), Statutory Liability, Company/Entity cover, Fidelity, Tax Audit, Trustees Liability and Internet Liability.
But recent changes to regulations – such as new work health safety (WHS) legislation, the Food Act and the Fair Work Act – coupled with a more litigious society have created increased exposures for small-to-medium-sized enterprises (SMEs).
Without some of these insurance covers in place, smaller businesses often don’t have deep enough pockets to stay viable following a hefty fine and/or expensive legal fees.
Weighing up the risks
TStatutory exposures are a good case in point because the information from court proceedings is readily available in the public domain. For example, in September 2013, a NSW company was fined $80,000 when one of its workers was injured using a client’s forklift to unload bread from a truck. While the forklift’s broken handbrake was the primary cause of the incident, the judge found employer Levira culpable.
Prosecutions under the Food Act can also carry large fines and incur significant legal fees, with food manufacturers, restaurants/cafes, retailers and wholesalers all at risk of prosecution.
In addition to fines and court costs, a company’s legal defence costs can also quickly mount up in these situations, with lawyers charging $300 to $500 per hour, junior counsel $1500 to $300 per day and senior counsel $3000 to $12,000 per day.
What’s the cover for?
Management Liability insurance is not a one-size-fits all solution; what covers are required will vary from one business to the next. Another important distinction is that D&O and Trustees Liability products provide coverage for individual exposures, while the other options protect the business entity from a variety of risks.
D&O cover provides protection for any claim alleging a wrongful act by a director or officer including misrepresentation, negligence and breach of duty. Typical claimants can include shareholders (for mismanagement of company assets etc.), employees (for harassment, failure to promote etc.), creditors (to recover debts), regulatory bodies (ASIC, ACCC, ATO etc.) and liquidators/receivers (for wrongful trading).
EPL provides cover for alleged employment breaches, such as discrimination, harassment, bullying, failure to promote, breach of contract and wrongful dismissal. Given the average EPL claim costs $50,000, this cover is essential for any company with employees.
Any business is at risk of legal action by a third party and the costs can be extremely high. Company/entity insurance can cover these defence costs.
Regulatory bodies have become increasingly vigilant and proactive in recent years. Statutory Liability insurance provides cover for defence costs incurred from any formal investigation by a regulatory/government/professional body or other authorised institution. It also covers any fine or penalty imposed (where legally permitted & subject to policy conditions).
A word of warning: Statutory Liability policies can vary significantly from one insurer to the next and some provide only limited cover/material exclusions.
Other Management Liability covers include: Fidelity insurance, which protects against employee dishonesty (e.g. embezzlement); Tax Audit insurance, which covers the accounting costs incurred during a tax audit/investigation; and Trustees Liability for directors and officers acting in the capacity of a trustee for the company’s employer sponsored superannuation scheme.
To find out more about Lumley Insurance’s small business solutions, visit Lumley for Business
Stephanie Myers is the National Underwriting Manager, Professional Liability, Lumley insurance.