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Running a business comes with countless decisions, hiring staff, managing operations, navigating regulations. But have you considered what happens when one of those decisions leads to a claim against you personally?
Many business owners assume liability insurance is only for large corporations. The reality? Small and medium businesses are just as exposed, and the consequences can be devastating.
What Is Management Liability Insurance?
Management liability insurance protects directors, managers, and employees against claims arising from their actions or decisions while running the business. This could include allegations of wrongful dismissal, discrimination, breach of duty, or fraud committed by employees.
Simply put it covers the costs of defending your business and its leaders when things go wrong.
Why Should You Care?
The numbers tell the story:
- 13,281 unfair dismissal claims were lodged in Australia in 2020-21 alone.
- 55% of Australian boards spend over half their time dealing with risk and compliance issues.
- 24% of frauds at Australian companies are committed by employees.
If you think "it won't happen to us," the statistics suggest otherwise. Even with the best intentions, businesses face claims, and the financial impact can threaten everything you've built.
What Does It Actually Cover?
Management liability policies vary, but here's what you might expect:
Employment Practice Liability
Covers claims like wrongful dismissal, bullying, harassment, or discrimination. One disgruntled employee can trigger legal action that costs tens of thousands in defence alone.
Directors' and Officers' Liability
Protects your company's directors and officers against allegations of wrongful acts, such as misrepresentation or breach of duty. Even past directors can be covered.
Crime Cover
Protects against employee or third-party fraud. If a trusted team member siphons funds or commits fraud, this helps recover losses.
Statutory Liability
Covers defence costs, fines, and penalties under various laws, like Work Health and Safety breaches (note: fines can't be covered in NSW, VIC, and WA).
Defence Costs
Perhaps most importantly, this covers your legal costs if you end up in court defending a claim.
Real-World Scenario
Imagine this: A former employee claims they were wrongfully dismissed because they were unwell when their position was terminated. They want reinstatement and back pay for lost income.
After failed conciliation, the matter goes to court. You're now facing legal fees, potential damages, and months of distraction from running your business.
With Management Liability insurance, you can recover some or all of these costs, protecting both your business and personal assets like your home from being sold to cover the claim.
What's Not Covered?
Like all insurance, there are exclusions:
- Cybercrime (unless specifically added)
- Employee entitlements
- Property damage or bodily injury
Your insurance advisor can walk you through the full details and any extensions you might need.
The Bottom Line
You work hard to build your business. Don't let one claim, legitimate or not, put it all at risk. Management Liability insurance ensures that when allegations arise, you have the financial protection to defend yourself without jeopardising everything you've worked for.
