We’ve all seen and heard the newspaper headlines and television current affairs programs conjuring up some unsavoury images of the big end of town – regulatory investigations, lawsuits against directors and multi-million dollar shareholder class actions.
 
But it’s not just big business that needs protection from legal actions.
 
If you own a small business or are part of the management of a “Pty Ltd” company, your day-to-day responsibilities in the workplace could be exposing you to expensive, worrying and time-consuming litigation from a variety of sources – most commonly employees, customers/clients, competitors, other third parties and government agencies.
 
For example, in one recent case a privately owned company with 52 employees was accused of age discrimination after it sacked a 59-year-old worker for alienating employees, poor performance and showing little or no interest in his job. The dismissed worker claimed he was sacked due to his age on the basis that senior management made comments about “getting rid of the old guys” and that his replacement was younger.
 
Despite believing all along they were not a fault, the company eventually settled with the plaintiff for $250,000 to avoid exorbitant court costs.  They also paid more than $60,000 in legal expenses.
 
Claims alleging sexual harassment, discrimination, defamation and wrongful dismissal account for most company-related claims and can be brought against directors and company managers by any past, present or prospective employee.
 
Corporate governance and greater regulatory surveillance means more and more private companies and their directors are coming under scrutiny from state and federal bodies. Investigations and proceedings for breaches of company law and OH&S standards are a costly and time-consuming exercise.
 
For example, when a part-time sub-contractor caught his hand and lost two fingers in a machine, the proprietary company he was employed by was subjected to a full occupational health and safety investigation and penalised $100,000 as a result. The business owner also incurred an additional $45,000 in defence costs.
 
As a potential target of a management liability claim, a business, its directors and management team are vulnerable to costly litigation. For directors and company managers found personally liable for a breach of their managerial duties, they expose their own assets and possibly those of their spouse, an estate or heir to a claim.
 
Even if the claim is successfully defended, despite its lack of merit, the defence costs alone could bankrupt you.
 
Traditionally, small and medium enterprises (SMEs) opt for directors’ & officers’ (D&O) insurance as it protects the personal interests and assets of individual directors and officers – but offers limited and optional cover to the business itself and some policies may not indemnify every person.

As a result, insurers have introduced a new broader type of cover tailored specifically to proprietary companies. It incorporates new and improved D&O cover, corporate management liability cover and policy features that provide more extensive coverage.
 
Management liability insurance protects not only the personal assets of directors and officers; it better protects the business itself. A management liability policy will generally include:

Scott & Broad Client Relationship Manager John Clark says this type of insurance includes coverage for statutory fines and penalties, which is a very important feature.
 
“The Federal Government’s proposed rationalisation of workplace safety regulations places business activities and managerial conduct under a microscope,” he said. “This could leave many small and medium-sized operators vulnerable to prohibitive penalties and court costs.”
 
He says one of the biggest hurdles for any proprietary company is the lack of expertise or resources to contest a complex legal dispute.
 
“A management liability policy will generally make funds available to a policyholder to defend any actions that may arise including the cost of official investigations and inquiries.”
 
For a company, and its directors and officers it means protection against employment practices claims – such as civil and criminal proceedings arising from allegations of harassment, discrimination or wrongful dismissal.
 
In the event of a crisis, it provides cover for any losses, and indemnity limits are restricted to accommodate smaller entities.
 
There is no better time than now to review and lock in your management liability insurance cover. 
 
However, it’s important to take the time to review the policy terms and the cover provided to ensure you are getting maximum protection.