More than 700 federal, state and territory laws apply to business owners, directors and managers when things go pear-shaped in their organisations.

That means you, as a business owner, could be held personally liable. Your business could risk financial devastation through costs, fines, and settlement payouts. It’s a risk that could involve your personal assets, such as your home or car, being forfeited to cover claims, too.

As a business, you can protect your risks with a tailored management liability policy. Such a policy protects from allegations of mismanagement, wrongdoings, misconduct as well as legislative breaches.

To understand your liabilities, check these out. For example, this Australian Securities & Investments Commission website explains company director liabilities. And law firm Hall & Wilcox offers this helpful guide to risk management for company directors. Meanwhile, another law company, Taurus Legal Management, details the personal liabilities of business owners whether they operate as sole traders or companies.

Management liability covers these 7 main areas

Usually, management liability offers coverage for:

1. Directors’ and officers’ liability, which includes protection against claims of wrongful acts/breach of duty against past, present and future directors and officers while they were in the roles

2. Employment practices liability, including unfair dismissal, bullying, or discrimination claims

3. Corporate or company liability which extends to attending official inquiries and the costs of investigating such claims

4. Statutory liability, such as for fines and penalties, though this is subject to your policy’s terms and conditions

5. Tax audit, including reasonable professional fees for investigations

6. Crime (or fidelity) protection, which is when you lose money or tangible property through the actions of dishonest staff, contractors, shareholders, or other third parties

7. Superannuation/trustees’ liability, for when your business entity operates under a trust structure.

Policies differ between insurers, however they generally exclude:

• Superannuation or wage liabilities

• Claims due to liquidation, bankruptcy, insolvency, receivership, or administration

• Intentional acts by your company, such as fraud or dishonesty

• Asbestos-related liabilities

• Accidental property damage or injury to third parties

• Accidental or intentional discharge, release, dispersal, or escape of pollutants.

Not the same as professional indemnity

Management liability and professional indemnity cover are often confused. The former offers cover in running your business. It protects the directors and officers of your business from risks relating to company management. That means covering your risks concerning people, finance, stakeholders, and regulations.

It’s for breaches of professional duty regarding the professional services or advice your company offers its customers and clients.

Therefore, management liability and professional indemnity are separate policies, though they can be combined under a ‘policy package’.

Your business size doesn’t matter

SMEs generally have the same legal obligations as larger organisations. This means no matter the size of your business, it has management liability exposures. It’s about the risks that could arise from your decisions and actions as a manager.

Employees, shareholders, customers, regulatory authorities, creditors, competitors and liquidators are examples of those who can make a claim. This can be against business owners, managers, directors, and officers for their roles in managing a company.

As well, be mindful that contentious management liability claims can arise from family-run businesses. This can occur during divorce or when family members disagree on the directions to take a business.

You can get retroactive cover

It might suit your business to select a management liability policy that does include cover for claims relating to incidents that happened before you take out the cover, providing you were not aware of any pending litigation. Insurers call this ‘retroactive cover’, some offering this as unlimited, while others set a specific date for cover. Meanwhile, some policies won’t cover prior claims.

For example, retroactive cover is handy if you take out the policy today and in a couple of months, a former employee alleges they were bullied in your workplace and make a claim. Provided you have not been aware of this mistreatment, and if your policy covers that date, you have a level of protection.

It’s not one-size-fits-all – talk to us

There’s a lot of variation among policies regarding inclusions, exclusions, deductibles, excesses and limits, so be sure to talk to us. We’ll listen to your needs and then guide you on your policy options to improve your risk management.