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Management liability demystified – is it the same thing as D&O?

Running and managing a small or medium-sized business can be exciting and rewarding, but equally challenging and fraught with risk.

It comes with risks and liabilities that may negatively impact your revenue and reputation – and sometimes, can threaten your personal assets. For example, consider this scenario: 

Your business is sued for breaching intellectual property rights. As the Director, you are liable for prosecution, and you have been charged. Legal costs could amount to tens of thousands of dollars. Without the right insurance, you could be facing the possibility of selling your personal assets, such as your house or vehicle, to cover costs. 

This is where management liability insurance comes into play – it can help protect your and other executives in your business from claims made against you for wrongful acts or decisions made in a professional capacity.

What is management liability insurance? 

Designed for businesses of all sizes, management liability is a packaged policy. Instead of having to purchase different covers individually and separately, a management liability policy can offer all that you need, conveniently, in one place.

Here are some common examples of management liability claims, which can range from crime and theft to regulatory breaches, unfair dismissal, harassment and discrimination.

Management liability insurance typically includes: 

  • Directors & officers liability (D&O): This can cover the costs incurred in defending directors and managers against claims arising from their actions and decisions. It also helps protect their personal assets. 
  • Corporate legal liability: Also known as company liability, this type of insurance can help protect the business itself from claims of wrongful management. It also covers PR costs to prevent damage to the business reputation (or to restore its reputation) in the event of a crisis. 
  • Employment practices liability: A policy that can help protect the business from claims of wrongful dismissal, discrimination or harassment by present, past or prospective employees. 
  • Crime: Also known as fidelity insurance, this can help protect the business against fraud, theft and other dishonest activities by employees or third parties. 
  • Statutory liability: A policy that can help protect both the entity and individuals (directors, executives and employees) against fines and pecuniary penalties for unintentionally breaching Australian laws or industry rules and regulations. 

Customise your policy as you need 

While management liability insurance includes several covers, D&O is the mandatory component. 

This means all the other cover options – such as, corporate legal, employment practices, crime, and statutory liability – are optional, allowing you to tailor your management liability package to your needs. 

For example, if you don’t have employees and don’t see the need for the employment practices liability insurance, you can remove it from your management liability policy. The same with corporate, crime, and statutory liability. 

The good news is that a management liability policy includes all the options in one package if you need it, and because it’s packaged, it means the overall cost can be less than if you purchased separate policies. 

What’s the difference between management liability insurance vs directors and officers?

There is some difference between management liability insurance and a standalone D&O policy.

Management liability

Management liability comes with a ‘condensed’ version of the D&O, which is not as broad as the standalone D&O policy, but can generally be sufficient for some smaller businesses.

A management liability policy is broad in that it helps cover a number of management and operational risks in one package.

This can be ideal for smaller businesses that are looking to keep costs down. 

Some liabilities are also only covered under management liability insurance, for example, corporate legal liability. 

Directors and officers (D&O)

D&O insurance is a standalone policy that is typically more suited to larger organisations with more than $100 million revenue. 

It offers much broader coverage, and has fewer exclusions and higher sub-limits, but it can also be a lot more expensive, with higher premiums. 

Most importantly, when you purchase a standalone D&O, you only get the D&O cover. 

To get broader protection for your business, you’ll need to purchase other policies separately, which can translate to higher costs and more complexity for your business or organisation.

Avoid potential risks with management liability

The best way to empower and protect your business or company executives from claims made against the decisions they make is to take out insurance cover.

Talk to an expert insurance broker - they help make it easy for you to match the right cover to your risks, at the right price point. 

Need help?

If you have any questions about the content covered in this article or the risks and insurance coverage requirements for your business, reach out to your Marsh risk advisor today or contact us.

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors.

Marsh Advantage Insurance Pty Ltd (ABN 31 081 358 303, AFSL 238369)(“MAI”) arranges the insurance and is not the insurer. This publication contains general information and does not take into account your individual objectives, financial situation or needs. For full details of the terms, conditions and limitations of the covers, refer to the specific policy wordings and/or Product Disclosure Statements available from MAI on request. MAI makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. MAI makes no assurances regarding the availability, cost, or terms of insurance coverage.