While you have the business insured for property damage and public liability, it’s also important to ensure that your personal liability as a director or a manager is also insured, Directors & Officers (D&O) or Management Liability insurance provides this cover.
Managers and directors are increasingly exposed to personal lawsuits from actual or alleged workplace harassment (Employment Practices liability), mismanagement, pollution/ environmental contamination, WH&S breaches and WorkCover investigations.
D&O and Management Liability insurance pays your personal legal costs, as well as paying for any damages awarded against you personally for either an actual or alleged act in relation to the performance of work-related duties and responsibilities. This policy will also reimburse costs related to the company for tax audit costs, fraud related losses and loss due to employee theft.
Without insurance in place, directors, managers and senior staff can be exposed to significant personal legal costs in defending an action, in addition to any damages awarded if found to have been at fault. These amounts can easily range from tens of thousands to hundreds of thousands of dollars, a significant financial burden for most people.
So, what does D&O Management Liability insurance cover, who can benefit from this type of insurance and how can it help your business?
What does D&O Management Liability insurance cover?
D&O and Management Liability insurance covers all past, present and future directors, officers and senior staff (i.e. line managers or supervisors) against claims of actual or alleged wrongful acts, errors or omissions in the performance of their work duties. This policy provides cover for managers personal legal costs, which the company may not want to pay for, due to the allegations, investigation or inquiry costs and expenses. If the company does pay for the personal legal costs of a director or manager, plus any damages awarded, the insurance will automatically reimburse the company for these costs (Company Reimbursement cover).
It should also be noted that fraud is not covered under business insurance policies, so it’s important to have this covered under a D&O or Management liability policy. Business policies cover burglaries or theft due to a break-in only.
It’s also important to understand that Professional Indemnity insurance does not cover the same issues as D&O and Management Liability insurance. Professional Indemnity covers financial loss, including financial damages caused to a third party as a result of following negligent professional advice.
So, Management liability covers internal losses to the business, whereas Professional Indemnity covers losses to external customers (third parties) of the business, related to actual or alleged negligent professional advice.
Who can benefit from D&O Management Liability insurance?
Whilst directors, managers and senior staff may follow policies and procedures, accidents and mistakes can still happen. Employees can overlook or miss important safety rules, resulting in injuries or even death or money or goods can go missing or be stolen.
Under workplace laws, directors and senior managers are personally responsible for injuries at the workplace. In some states and territories, these include criminal actions, with jail sentences and personal fines.
How can your business benefit from D&O Management Liability insurance?
Litigation can come from employees, financiers, government regulators in your industry or shareholders. Examples include breach of duty, defamation, misrepresentation, breach of contract, discrimination, negligence, inaccurate reporting, bullying, harassment, unfair dismissal and occupational health and safety incidents. Fraud including theft by employees or contractors, fake payments, forged cheques/ eft transfers and embezzlement. Essentially, this insurance protects directors, officers and senior management, as well as the business against investigation and legal costs, court awarded damages and other financial losses.
Speaking to a professional insurance adviser
This is where your insurance adviser is an invaluable asset. Given that no two businesses are alike and nor are their risks, your D&O or Management Liability insurance will need to be customised to meet your own personal and business risks. Insurance advisers are trained professionals with expertise in advising on insurable risks in your industry or profession.
You can work with them to explain the insurance options available, discuss the most appropriate insurance policy and costs, then put the most appropriate insurance cover into place. This will ensure your directors, officers and senior management have peace of mind in that they are supported in day-to-day decision making and management.
If you want professional advice in tailoring a D&O or Management Liability insurance for your business, talk to an insurance professional today and find your local adviser.
This communication including any weblinks or attachments is for information purposes only, it is not a summary of a particular insurance product’s terms or conditions or a Policy Disclosure Statement (PDS). It is also not personal advice and your individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice. We strongly recommend that you consider the suitability of this information, in respect of your own personal objectives, financial situation and needs and if you are interested in discussing or finding out more about this communication, you should contact your insurance adviser. We also strongly recommend that you obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.
The type of insurance product in this communication is designed for both small and large businesses, who want directors, managers and their business to be covered against financial loss, including personal financial loss, from operating and managing a business.
Directors & Officers/Management Liability Insurance
What is it?
Many small and medium-sized business owners think they don’t need Directors & Officers (D&O) Insurance as it’s only relevant to large multi-national companies. However, D&O insurance is just as important to SME’s as any other business.
What it covers?
D&O Insurance protects the personal assets of business owners and managers who run companies, as they are personally liable for any decision, action or inaction they make within the business.
Whilst your senior management and executives may make honourable decisions and actions, mistakes can still happen. Even if the individual in question has not acted improperly, the cost of investigating and then defending an allegation, which could prove to be unfounded, can be many thousands of dollars. It can also divert large amounts management time and effort, distracting them from their core business focus.
D&O Insurance gives directors, managers and officers, both past or present, the peace of mind knowing they’re insured against legal costs as well as any penalties or damages that may result from a claim or investigation.
Typical claims that can be covered under these policies include HR and employment issues, breach of contract, decisions that exceed their authority, misrepresentation, inaccurate reporting, regulatory and legal non-compliance.
As a matter of course, directors, managers and officers usually make these types of decisions daily, so it pays to ensure they’re fully covered if any regulatory or legal claims or investigations are made against them.
One option to consider is a Management Liability (ML) policy. This packaged policy is designed specifically for SMEs to protect the individual directors and officers, as well as the company in relation to the exposures of managing a company.
The key elements of ML cover include:
- Directors & Officers Liability
- Company Reimbursement
- Employment Practices Liability
- Statutory Liability
- Trustees Liability
- Internet Liability
- Kidnap, Ransom & Extortion
An Insurance Advisernet Authorised Representative is ideally placed to discuss your specific business situation with relation to this type cover. History for many businesses shows it’s a conversation well worth having.