You may have put in years of effort and dreams to get to the point where you can own and operate your own business. However, if you do not have management liability insurance, your dream could turn into a nightmare. Management liability insurance protects you as well as the officers, managers, and directors of your firm.
The decision-making authority rests with you and those in your organization’s upper management. Furthermore, there is a wide range of scenarios that can have a personal impact on you and your company’s highest echelons. Everywhere you look, there is the possibility of a lawsuit. One out of every five small to medium-sized firms finds itself in the position of defending a wrongful termination claim at some point in their operation.
The Australian government’s SafeWork Australia estimates that work-related illness and injury costs Australian businesses an estimated $61.8 billion each year. These are the most typical challenges that businesses must deal with, but there are a plethora of others as well. You owe it to yourself and your organisation to be proactive in preventing problems from occurring by obtaining management liability insurance.
What is management liability insurance, and how does it work?
A management liability insurance coverage protects business owners, managers, directors, and other corporate executives from personal financial loss as a result of issues arising from the firm’s operations or management. Management liability insurance, at its most basic level, is designed to protect senior executives in a firm from the risks and hazards that come with managing and operating a corporation.
Exactly what is covered by Management Liability Insurance?
A certain amount of risk is inherent in every commercial venture. Depending on the industry, some businesses will be exposed to much greater amounts of risk than others. Management responsibility protects persons in charge of a corporation from a variety of issues, such as those listed below.
- Claims for Breach of Contract Defense Expenses
- Business Errors
- Disputes in the Commercial Sector
- Employee Theft or Fraud
- Claims for Unfair Employment Practices, such as Harassment, Wrongful Dismissal, or Discrimination.
- Expenses Associated with Environmental Defense
- Personal Liability of Directors of Corporations
- Investigations and Actions Taken by the Regulatory Authorities
- Audits of Statutory Liability Taxes
- Workplace Health and Safety Incidents Are Covered Under Whistleblower Protection
It is important to note that management liability insurance or liability insurance does not absolve a firm of responsibility for misconduct on its behalf. It prevents individuals in charge from being held personally and financially liable for an action or incident that occurred due to circumstances outside their knowledge or influence.
Let’s look at an example.
John’s brother-in-law serves as Vice President and is in charge of the company’s day-to-day operations. John is the owner of a small brewing company. His brother-in-law fired an employee after she accused him of sexual harassment. The former employee has launched a lawsuit against the Vice President, the corporation, and John. The management liability insurance that John has in place protects him from being personally liable for the activities of his brother-in-law. If his brother-in-law is found guilty of sexual harassment and wrongful dismissal, he will be held accountable for his acts.
In what situations does Management Liability Insurance not provide coverage?
There are a number of situations in which management liability insurance may not be applicable. These are some examples:
- Business Insolvency as a result of bodily injury
- Fines and Penalties in the Civil Courts
- Loss caused by a data breach or other cyber-criminal activity
- Damages to property caused by criminal activity and dishonesty on the part of management
- Legislative violations
- Incidents that occurred before the company signed the policy and were known to them
What Types of Businesses Require Management Liability Coverage?
The existence of a management liability insurance coverage should be considered if your company is large enough to have multiple levels of managers or board members of directors. This is true regardless of how cautious your managers are or how much honesty you observe among your directors. Not every claim brought against your company will be the result of mismanagement or dishonesty on the part of the plaintiff. Being ignorant of regulations or other specifics will not serve as a defence in court.
Let’s look at an example.
Simon is the owner of a fashionable clothes company. He obtains his items from a variety of small manufacturers who adhere to ethical labour policies and purchase products from ethically sourced suppliers. Simon promotes these facts since he is pleased with his efforts to assist employees and the environment. His buyer, on the other hand, was completely unaware that he was purchasing things manufactured by underage workers. Simon’s company was identified as a defendant in a lawsuit alleging deceptive advertising and was fined. The defence of the case and payment of the penalty were covered by management liability insurance. As a result, even though Simon and his managers had no intention of deceiving customers, they were negligent since they purchased garments from an unethical manufacturer.
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It can be difficult to navigate the world of business insurance. An insurance broker can help you to have confidence that you have the most appropriate insurance coverage for your needs.