Management Liability Insurance

Compare management liability insurance quotes here with Savvy and get the protection needed for peace of mind. 

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, updated on July 7th, 2023       

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In today's complex business landscape, it's essential for companies to protect themselves from various risks and liabilities. One such area of concern is management liability, which encompasses a wide range of risks that company directors, officers, and managers may face in the course of their duties. To mitigate these risks, many organisations turn to management liability insurance.

You can compare online quotes for management liability insurance from some of Australia’s leading insurers right here with Savvy. Consider a range of offers side-by-side so you can rest easy knowing you have the cover you need. Start the process with us today. 

What is management liability insurance?

Management liability insurance is a specialised type of business insurance designed to protect company directors, officers, and managers from potential claims that may arise from their actions or decisions while performing their professional duties. It provides coverage for legal expenses, settlements, and judgments that may result from claims brought against individuals in managerial positions.

This type of insurance is crucial in today's litigious business environment, where executives can be held personally liable for their actions. It offers financial protection and peace of mind to those in leadership roles, allowing them to make decisions without the constant fear of personal liability.

Management liability insurance is often structured as a business insurance package policy that combines various coverages to address the specific risks faced by executives.

Why is management liability insurance important? 

In today's business world, the responsibilities and potential liabilities of company management have significantly increased. From regulatory compliance to employee lawsuits, executives face numerous risks that can have severe financial and reputational consequences. Here's why management liability insurance is so important for businesses who wish to attract and retain top quality executives:

Personal protection for executives: Management liability insurance safeguards executives from personal financial loss due to legal claims arising from their managerial roles.

Recruitment and retention incentive: Offering management liability coverage can be an attractive incentive for talented individuals considering leadership positions within an organisation. It demonstrates a commitment to protecting executives from potential risks, making employment with the organisation a more attractive proposition. 

Peace of mind: Executives can make informed decisions without constantly worrying about personal liability. Management liability insurance provides peace of mind, allowing managers to focus on their key responsibilities and drive business growth.

Cover for legal defence costs: Legal battles can be financially draining, even if a claim is ultimately dismissed. Management liability insurance covers defence costs, ensuring that executives have access to robust legal representation to protect their interests.

Safeguarding company assets: By protecting the personal assets of executives, management liability insurance helps preserve the financial stability of the company. It ensures that personal financial setbacks do not affect the organisation's ability to operate effectively.

By investing in management liability insurance, companies demonstrate their commitment to protecting their leadership and minimizing the potential financial risks associated with managerial positions.

How much does management liability cost?

When considering the appropriate coverage level for your business, it's important to take into account these factors:

  • the specific risks your business may encounter
  • the legal expenses required to defend your business
  • potential fines and penalties resulting from any breaches
  • the potential costs that may be awarded to claimants.

You have the flexibility to choose policies that provide coverage ranging from $1 million to $5 million.

Who needs management liability insurance?

Management liability insurance is essential for various types of businesses and organisations. Here are some examples of entities that typically need management liability insurance:

  1. Publicly traded companies: Directors and officers of publicly traded companies face extensive responsibilities and potential liabilities. Management liability insurance provides financial protection for these executives against claims alleging wrongful acts, negligence, or mismanagement.
  2. Private companies: Private companies, regardless of their size, can greatly benefit from management liability insurance. The coverage protects the directors, officers, and managers from potential claims arising from their managerial roles and responsibilities.
  3. Nonprofit organisations: Nonprofit organisations, including charities, foundations, and associations, rely on directors and officers to oversee their operations. Management liability insurance safeguards these individuals from personal liability in case of claims related to their duties.
  4. Professional service firms: Businesses offering professional services, such as law firms, accounting firms, consulting firms, and architectural firms, should consider management liability insurance. This coverage protects professionals from claims alleging errors, omissions, or negligence in the performance of their professional services.
  5. Startups and small businesses: Startups and small businesses often have limited resources and may face significant risks. Management liability insurance can provide critical protection for entrepreneurs, directors, and officers, allowing them to make informed decisions without the constant fear of personal liability.

It's important to note that the need for management liability insurance may vary depending on the nature of the business, the industry, and the specific risks involved. Consulting with an insurance professional can help determine the appropriate coverage for a particular organisation.

How do I compare management liability insurance policies?

There are several aspects of management liability insurance which you should look at when comparing policies. These are: 

Cost of the policy 

Cost is an important aspect of any insurance policy, but don't choose the cheapest policy simply to save money. It’s more important to find an insurance option which provides you with the protection you require to ensure your business thrives in all circumstances. Nonetheless, you should compare policies to ensure that you are not paying more than necessary. 

Inclusions 

Look closely at what is and isn’t included in the policy. By comparing several policies side-by-side, you’ll get a clearer idea of some of the risks your company may face and what you’ll be covered for. 

Exclusions 

As well as understanding what sort of insurance you need for your business, comparing policies will also help you understand the exclusions and what isn’t covered. Many of the aspects which aren’t covered by management liability insurance are covered by other types of insurance which your business should have. For example: 

Payout limits 

The level of cover on offer is also worth comparing against the price of the insurance offered. For each element of cover, there may be specific limits or there may be one which applies to the whole policy.  

For example, some policies may specify you’re covered up to $1 million for any fines or penalties awarded against the company and $1 million for legal costs, and so on, whilst others have a blanket limit of $2 million to $5 million for all elements of the cover combined. Ensure your business has the cover it needs. 

Policy excess 

Choosing a policy excess level that you are comfortable with and able to afford is also important. Insurance excesses are in place to discourage multiple minor claims. Choosing a higher excess may make your premiums more affordable, but don’t choose an excess that is so high it will prove to be unaffordable.  

The pros and cons of management liability cover

PROS

Offers directors protection 

It's a relief to many directors to know their personal assets are protected in case the company they advise has a claim made against it. Without such protection, many eminent business people could be reluctant to become a director.  

Reassures shareholders 

If the company holds liability insurance for its directors, shareholders can be reassured the company is protected in case of allegations of wrongdoing by a key person.  

Can help defend a director’s reputation 

If a director has recently been appointed to assist a company that is facing difficulties, directors liability insurance can help them protect their reputation if allegations are made that they’re responsible for the company’s woes. 

Covers the cost of malicious claims 

Recently terminated employees may make malicious claims against management. Management liability insurance can protect both the managers and the company from such claims. 

CONS

May be expensive

The cost of management liability coverage can be considerable, as it’s predominantly aimed at companies who have many employees and may be faced with more risks than smaller businesses.

Exclusions 

Some of the risks excluded by management liability insurance can be very costly. For example, cover for intentional or accidental discharge, release or escape of pollutants is omitted, an exclusion which several major oil companies have been stung by.

Complex policies 

The risks covered by management liability are, by their very nature, not simple ones, so these policies are often extremely complicated and required a degree of legal knowledge to fully comprehend what is and isn’t included. 

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More of your frequently asked questions about management liability insurance

Does management liability insurance cover cyber risks and data breaches?

Yes, some management liability insurance policies may include coverage for cyber risks and data breaches. Some policies may offer optional or separate cyber liability coverage, while others may include it as part of their overall management liability insurance package. However, it's important to review the specific terms and conditions of the policy you are considering to determine the extent of coverage. 

What’s the difference between management liability and professional indemnity insurance?

Management liability protects you and your company against the risks associated with running the company and the decisions you make in your capacity as a manager or director. Professional indemnity insurance covers adverse claims against advice you gave or a service you performed as a professional person individually. 

Is there management liability insurance for sole traders?

Traditionally, this type of insurance has been solely for companies with multiple employees. However, there are now insurance policies that cover sole traders for some parts of this type of insurance, such as regulatory risks of non-compliance. This type of insurance tends to be offered by smaller, specialist insurers rather than by larger general insurers. 

How much will my management liability insurance excess be?

The amount of your excess will depend on whether you have taken out this form of insurance on its own or as part of a business insurance package. You will usually be given a choice of excess (ranging from $200 up to $800 or more) so you can decide whether it’s worth making a claim and losing the no-claims bonus you may have on other types of insurance with the same company

Does management liability protect against theft by employees?

Yes – your company should be protected in the event an employee steals company assets, as crime protection usually forms one part of management liability insurance. For example, if you have management liability insurance for your company in the Australian Capital Territory and a bookkeeper you employ fraudulently steals money, the cost of prosecuting them should be covered by your insurance and the money lost will be compensated if it’s unrecoverable.

Can directors and managers have more than one management liability insurance policy protecting them?

Yes – if a person fulfils multiple roles with different companies or organisations, it’s certainly possible for one person to have several different management liability policies protecting their actions. For example, the person may be a contractor who is acting as a consultant to one business but is also the director of a charity or the manager of a sporting organisation in their spare time. As such, it’s important to compare your options with Savvy to ensure you receive the most suitable cover for your position or positions. 

What are the common exclusions in management liability insurance policies?

Common exclusions in management liability insurance policies may include claims related to prior acts committed before the policy's inception, intentional wrongful acts, bodily injury and property damage claims. Each policy will have its own set of exclusions, so it's crucial to carefully review the policy documentation to understand the specific exclusions applicable to your coverage.

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