Management Liability Insurance - Giving You Peace of Mind

December 2011

Imagine the impact that any one of the following claim scenarios could have upon your business:

  • A personal claim against you by a disgruntled competitor, creditor or shareholder;
  • Your criminal prosecution as a result of a breach of OH&S legislation;
  • Allegations of discrimination, harassment, unfair dismissal etc. by an employee - past or present;
  • Employees (including your most trusted) committing fraud or embezzlement of your funds.

When thinking about the potential exposures of a business, we tend only to think about the risks associated with the products or services that we provide. However, in today’s highly regulated and litigious business environment, it is important to also consider liabilities that may arise from simply managing a business.

Interactions with customers, employees, competitors, creditors, regulators and shareholders can create liabilities for the company and also the individual directors/officers of the business.

Increasing compliance, greater public expectations of our behaviour and ever changing employment laws all mean that what we once could expect to be normal business practice is now the food of the legal profession! In recent times, there have been numerous high profile examples of people suing for sexual harassment in the workplace, however this is just one type of employment practices liability a business can be exposed to.

It is very difficult to adopt policies and procedures to protect you and your business against all of the above scenarios – even if you and your business are not at fault, you run the risk of getting caught up in expensive litigation, simply through unfounded allegations.

Protecting you and your business against such exposures can be achieved through purchasing Management Liability Insurance. In essence, Management Liability insurance is a suite of cover options that insures your personal liabilities as a manager or director of a business. It also protects the business itself from liabilities arising from your interaction with a variety of stakeholders.

It is our business to ensure you are aware of and are offered the chance to protect yourself and your business from the legal liabilities that could exhaust your financial resources. We therefore rcommend you seriously consider the purchase of Management Liability insurance.

You may never realise that a risk exists until it is too late!

It is important to understand that Management Liability insurance is complementary to Professional Indemnity and public liability insurance and does not cover the same risks covered by these policies.

Please call if you would appreciate further insight into the benefits of Management Liability insurance and how we can smoothly integrate it into the insurance program that we have arranged for you.

For the relatively small amount of premium involved compared to the substantial level of protection provided this cover will offer you that peace of mind for that event that could end up with you in court!

Management Liability Insurance

Claims Examples

Occupational Health & Safety

Scenario:  During the construction of a commercial property, an employee was severely injured and left paralysed when a pile of debris accidentally fell on him. The company was subject to Occupational Health and Safety investigation and prosecution.
Outcome: The Company vigorously denied and successfully defended all allegations, however was fined $150,000 and incurred $100,000 in legal costs.

Unfair Competition

Scenario: The Managing Director left his former company and started a new internet based pharmaceutical company. He was subsequently sued by the directors of his former company for alleged breaches of intellectual property rights and plagiarism. It was claimed that the new company’s products were a copy of the former company’s products sold in chemists across Australia. The former company issued proceedings in the Federal Court seeking damages in excess of $20 million.
Outcome: The claim was settled at mediation with defendant director agreeing to pay the amount of $1.3 million in damages. The legal costs incurred in this claim were in excess of $200,000.

Misappropriation of Trade Secrets

Scenario:  Company X sued directors and officers of Company Y after five employees of Company X left to join Company Y. The claim for $700,000 alleging theft of trade secrets and claiming that the five employees were still in the employment of Company X when they began sharing proprietary information with Company Y.
Outcome: The claim was settled after the second day of hearing for $305,000 on a commercial basis. The legal and expert witness costs totalled over $380,000.

Employment Practices Liability – Wrongful Termination

Scenario: A senior manager was terminated for allegedly stealing a laptop computer. The terminated employee maintained that he was provided with permission to take the laptop home to work on a report. Derogatory comments were made by the owner of the company in front of other employees that the senior manager was too old and should be ‘put to pasture’. The terminated employee sued for wrongful termination seeking $800,000 based on age discrimination despite maintaining a history of superseding his sale targets.
Outcome: The matter was settled at a court ordered conciliation for $550,000 with $150,000 in defence costs incurred.

Employment Practices Liability - Harassment and Bullying

Scenario: Two former officers of the company made claims totalling $500,000 against certain directors and officers for bullying, harassment, abuse and sexual harassment against a former employee. The claims also alleged the entity failed to respond to those allegations.
Outcome: The matter was commercially settled by the company for $200,000 per claimant with $120,000 in defence costs incurred.

CLAIMS SCENARIOS

Employment Practices - Unfair Dismissal and Sexual Harassment

Scenario: A male former employee lodged a claim with Fair Work Australia alleging he was terminated because of his gender. He alleged that his female manager showed him inappropriate photos of herself and her husband and made inappropriate advances. After these advances were rejected the manager raised various performance issues which led to termination of his employment. He sought $60,000 (six months’ salary).
Outcome: The matter was settled at conciliation for $20,000 with $16,000 legal costs being incurred.

Crime – Altered Cheques

Scenario: Over a period of 5 years, an employee accountant misappropriated $850,000 by altering cheques and naming himself and members of his family as payee whilst continuing a cycle of paying debtors accounts with funds from other debtors. Until it was discovered by auditors the theft remained undetected for a long period of time because the employee was a close and trusted friend of the owner of the company.
Outcome: Total loss to the company amounted to $850,000. In this instance, there was no chance of recovery from the fraudster as he had no assets and had gambled away the stolen funds. The investigation and legal costs totalled $150,000.

 

This publication is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. You should seek professional advice before acting or relying on any of its content. You should have regard to the terms and conditions of the policy which are not altered by this document.

 
 

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