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Management liability insurance
Management liability insurance covers you for claims against your actions for running a company.
Protecting your business with insurance cover is more important than ever in today’s challenging business world. One vital form of cover is management liability insurance.
Find out how management liability insurance can help your business in this guide.
What exactly does management liability insurance cover?
Management liability insurance cover protects directors and officers from any liability for mismanaging a company. Not to be confused with professional indemnity insurance, management liability insurance covers you for claims against your actions of running a company.
For example, if you unintentionally mismanage a company you may be subject to claims from stakeholders. You could risk both:
- Losing the business
- Your personal assets in some cases
Management liability cover can help ensure your business is financially protected from these risks.
Who does management liability insurance protect?
Management liability cover specifically protects:
- The company
- Individual managers
- Employees involved directly in management of the company
What are the specific types of claims that I’m protected against?
Without management liability cover in place, directors and officers stand at risk of losing not only their business, but also their personal assets and financial wellbeing.
- Employment issues. Management liability insurance protects you against employment claims brought by employees. These can include claims for unfair or wrongful dismissal, discrimination, sexual harassment and wrongful failure to employ or promote.
- Occupational health and safety (OHS) issues. Prosecutions and inquiries into breaches of occupational health and safety can be quite damaging for businesses and individual managers or directors. Management liability insurance provides cover in these instances.
- Shareholder action against company directors. For example, shareholders may bring a statutory derivative action.
- Embezzlement of company funds. Claims alleging any sort of improper and illegal conduct will need to be investigated. Management liability insurance provides cover in these instances.
- Intellectual property breaches or theft. These sorts of claims can be brought by your business competitors, and protection against this sort of action in today’s complex business world is vital.
- Unfair competition breaches. Your business competitors may accuse you of being involved in anti-competitive conduct. Cover for legal fees and any fines you may be required to pay is essential.
- Claims from statutory bodies. This includes investigations by authorities like the FMA and WorkSafe. These are serious matters that can be very costly and damage to your business and to you personally.
- Claims from a liquidator acting on behalf of the company itself. A liquidator may allege that you are guilty of insolvent trading.
- Defamation by directors or officers. Defamation claims are becoming increasingly common in the New Zealand business landscape.
- Taxation investigations. Management liability insurance covers you against these investigations into your company.
- Claims of breaches of directors’ duties. This may include claims of breaches of fiduciary duties, including breach of trust.
Did you know?
Management liability insurance does not cover you against client claims for the services you provide.
This type of cover is provided by professional indemnity insurance.
Who can make claims against you?
The range of claims that might be brought against directors and officers includes:
- Claims for wrongful dismissal or harassment from employees
- Claims from shareholders
- Claims from statutory bodies. This includes investigations by authorities like the FMA and WorkSafe
- Claims from competitors who may accuse you of being involved in anti-competitive conduct
- Claims from a liquidator acting on behalf of the company itself
What are the most common types of claims made?
Though the range of issues and incidents a management liability insurance policy covers is quite varied, the most common types of claims made include:
- Wrongful dismissal or harassment in the workplace
- Discrimination such as the wrongful failure to employ or promote
- Allegations of improper and/or illegal conduct
- Statutory derivative actions by shareholders
- False, misleading and deceptive conduct
- Breaches of a director’s duty
- WorkSafe investigations and claims relating to OHS
- Claims brought against the company by a liquidator
- Theft by employees
- Breaches of intellectual property rights
- Investigations by the Inland Revenue Department.
What type of expenses am I covered for?
Management liability insurance is therefore designed to cover any damages and claimant costs awarded against you. It also provides cover for your:
- Legal expenses
- Investigation costs
- Any pecuniary penalties
How do I make a claim?
If someone seeks reimbursement from you for company mismanagement, these are the steps you will need to follow when lodging a claim with your insurer:
- Notify your insurer as soon as possible of the impending claim against you.
- Do not admit any liability without your insurer’s written consent.
- Cooperate fully with the investigation and defence, providing evidence and documentation as required.
- Agree to a settlement if recommended by the insurer’s legal defence team.
There are some important terms you should familiarise yourself with to help you understand the ins and outs of a management liability insurance policy. These include:
- Asbestos. No claim will be paid for any loss arising from the inhalation of or exposure to asbestos, or for the cost of cleaning up, or removal of, or damage to, or loss of use of property caused by asbestos.
- Bodily injury and property damage. No claim will be paid for any bodily injury, mental anguish, emotional distress, sickness, disease or death of any person, or for any damage to or destruction of property.
- Capital raising. The insurer will not be liable for any loss resulting from claims related to the raising of capital by debt or equity.
- Dishonest or criminal intent / improper conduct. Management liability insurance in New Zealand will not cover any loss resulting from claims related to wrongful acts committed with reckless, dishonest or criminal intent. In addition, you will not be covered if you use your position or any information you have as a result of your position to help yourself or someone else to cause a detriment to the company.
- Industrial relations. If the loss arises from claims related to things like strikes, lock-outs, negotiation of enterprise agreements or collective redundancies, your insurance policy will not provide any cover.
- Insolvency. Loss connected to the insolvency, bankruptcy or financial impairment of your company will not be covered.
- Outside jurisdiction. Claims brought in a court or tribunal outside of New Zealand will typically not be covered under your policy.
- Known claims and circumstances. Similar to the treatment of some pre-existing conditions on life insurance policy, claims made before the commencement date of the insurance policy will not receive coverage.
- Major shareholder. Some policies will not provide cover in the event that you incur a loss resulting from claims made by a shareholder in control of 15% or more of the company.
- Personal profit. If you gain any personal profit or financial advantage which you were not entitled to, you may not be covered under a management liability insurance policy.
- Pollution. The insurer will not be liable for any loss relating to pollution, including any financial loss to the company resulting from this.
- Products or services. Loss brought about by claims arising from any breach of duty in any professional services rendered by your company will not receive cover under management liability insurance. This is what professional indemnity cover is for.
- Securities. Any loss resulting from your offer, sale or listing of any securities will not be covered.
- War, terrorism and radioactivity. The insurer will not cover you for any loss relating to either of these three incidents.
Does your business need any other insurance policies?
As well as management liability insurance, there are several other types of business insurance that can protect you for different events. These include:
- Public liability insurance. This protects you if your business becomes legally liable if someone is injured or their property is damaged.
- Product liability insurance.This covers you if the products you manufacture, distribute or sell result in someone suffering financial damages. It’s often bundled with public liability cover.
- Professional indemnity insurance. This protects you if you’re accused of negligence in the services or advice that you provide.
How is management liability insurance different to professional indemnity insurance?
Many people make the mistake of assuming that management liability insurance and professional indemnity insurance are one and the same, but there are some key differences between the two types of cover.
|Management liability insurance||Professional indemnity insurance|
|What are you protected against?||Claims against the management of the company||Claims against a company’s professional services|
|Who do the claims usually come from?||Shareholders, employees, OHS inquiries, etc||Clients, competitors, business partners|
|Who is this covered designed for?||Any party that directs or manages a company||Any party or business that provides professional services|
While professional indemnity insurance covers you for professional services rendered, management liability cover is concerned with the act of running a company. Make sure you’re aware of the difference between the two and that you take out both forms of cover if it is required for your business.
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