Running a small business is quite challenging and there are a lot of different things you need to be aware of. It can be difficult to keep up with government legislation, but as a director of a company you are expected to adhere to government legislation in a range of areas including work, health and safety, environmental, employment, and tax audits to name a few. If your business has employees, you can also be out of pocket due to employee fraud or dishonesty. Management liability insurance provides protection for costs of defending directors, managers and employees against any claims that are the result of their actions or decisions in the running of your company. Claims can be made by clients, suppliers, competitors, employees, and government agencies. Management Liability is a product that combines stand-alone covers such as Directors and Officers Liability, Statutory Liability, Employment Practices Liability, Crime Protection, and Tax Audit.

Here is the breakdown of management liability insurance:

  1. Directors and officers liability
    As a director of your company, you are responsible for making decisions for your company. The directors and officers (D&O) liability component of a management liability insurance policy covers your personal liability and financial loss from allegations made for wrongful acts in your capacity as a director of your company. D&O insurance covers both the financial loss and the defence costs.
  2. Statutory liability
    The statutory liability component of a management liability insurance policy covers costs associated with an investigation by a government regulator and indemnification of government fines and penalties against your business for allegations of wrongful breaches of government legislation. For example, it is quite common for allegations to be made against businesses for breach of workplace health and safety (WHS) laws. The legal costs for the defence of a formal investigation, particularly where there has been a serious injury can be very costly. If prosecuted the company as well as its directors and senior managers can be held liable. Without management liability insurance, most small to medium size businesses would struggle to recover from such an event. Allegations against your company for breach of environmental laws could be similarly devasting without management liability insurance.
  3. Employment practices liability
    If you have employees, contract workers, temporary workers of you are even interviewing candidates for a position, then your business must adhere to the Fair Work Act, and is at risk of allegations of unfair dismissal, workplace defamation, bullying, victimisation, harassment including sexual harassment, wrongful discrimination, or inaction to prevent such events, and breach of employment contract to name a few. Unfortunately, litigation by employees against their employers is on the rise and it can be difficult to keep up with changes in government legislation. Therefore, it is important to have management liability insurance, particularly if your business has employees.
  4. Crime protection
    The crime protection component of a management liability insurance policy is another good reason to take out a policy if your business has employees. Crime protection covers your business against dishonest acts committed by employees such as theft and fraud.
  5. Tax audit
    You know the saying, “there are two certainties in life, death and taxes.” Did you know that the infamous gangster, Al Capone (also known as Scarface) was eventually caught for tax evasion? As a general rule, the director is legally responsible for correctly reporting the company tax obligations to the ATO. Due to the complexity of Australia’s tax rules, it is easy to make a mistake and trigger an audit by the ATO. The tax audit component of a management liability insurance policy covers the professional fees required to respond to an audit, enquiry, investigation, review or examination of returns lodged with the ATO or other government revenue authorities.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.
Craig Muldoon (AR 449629), Stress Free Insurance Pty Ltd, (CAR 129267, ABN 68 655 178 377)