Recruitment Management Liability Insurance

Why do you need it?

Your Company and its directors, officers, senior managers and employees need Management Liability insurance because they face both corporate and personal liabilities which can arise from Claims made against them by numerous stakeholders, including but not limited to:

• Employees.
• Shareholders.
• Creditors.
• Competitors.
• Regulators (such as ASIC and the ACCC).
• Customers, including Host Employers.
• Liquidators /Administrators.

When a breach of company law or regulation occurs or is alleged to have occurred, the focus is on your conduct or alleged conduct as a director, officer, senior manager, employee and as a Company. Even where a Claim appears to be completely baseless or without merit, it will still cost you time and money to successfully defend the Claim.

These exposures associated with managing your business are vast and numerous.

There are certain situations, as described in Part 2D.2 of the Corporations Act 2001 (Cth), where a Company is legally prohibited from indemnifying its directors, officers and senior managers in respect of:

• the payment of damages or compensation.
• claimant’s costs and expenses that are awarded against or recoverable from them.
• defence costs incurred by them in defending a Claim that is made against them.
• fines and penalties which they are ordered to pay by a Regulatory Authority.

Therefore, to ensure that your directors’, officers’, senior managers’ and employees’ personal assets are not at stake, it is essential that your directors, officers, senior managers and employees have Directors’ & Officers’ Liability insurance to cover them in those situations where:

• your Company is legally prohibited from indemnifying them.
• your Company makes the decision not to indemnify them, albeit that your Company may actually be legally permitted to indemnify them.

Your Company can also be a victim of theft or fraud, especially by people in positions of trust within your organisation. Therefore, among other things, you need cover for any direct financial loss that your Company may sustain as a result of theft of Money, Securities and other tangible property by any of your Company’s Directors or Employees.

What are the key covers to look for?

A Management Liability insurance policy covers the directors, officers, senior managers, employees and the Company in relation to exposures associated with managing a company.

The  main areas of cover in a Management Liability insurance policy, include but are not limited to:

Directors & Officers Liability Cover

This covers any Insured Person for any Claim alleging a Wrongful Act by any Insured Person and in respect of which Claim the Insured Person is not indemnified by the Company.

Company Reimbursement Cover

This covers the Company for any Claim alleging a Wrongful Act by any Insured Person and in respect of which Claim the Company is permitted or required by law to indemnify the Insured Person.

Company (Entity) Cover

This covers the Company for any Claim against the Company alleging Wrongful Acts.

Employment Practices Liability Cover

This covers the Insured Persons and/or the Company for any Claim against the Insured Persons and/or the Company alleging any Employment Practices Breach.

Superannuation Trustees Liability Cover

This covers the Trustees of a staff superannuation fund for any Claim against the Trustees alleging any Trustee Responsibility Breach.

Crime Cover

This covers the Company for, among other things, any direct financial loss sustained by the Company as a result of the theft of Money, Securities and other tangible property by any of its Directors or Employees.

What is meant by the term “the Company”?

The definition of ‘Company’ can vary from insurer to insurer. But basically speaking the term ‘Company’ refers to:

What is meant by the term “the Insured Person”?

The definition of ‘Insured Person’ can vary from insurer to insurer. But basically speaking the term ‘Insured Person’ refers to:

What Extensions should be included in your Management Liability insurance policy?

Your Management Liability insurance policy should, among other things, include the following extensions of cover:-

• Advancement of Defence Costs and Investigation Costs.
• Continuous Cover.
• Crisis Containment Cover.
• Emergency Defence Costs and Investigation Costs.
• Official Investigations and Inquiries.
• Occupational, Health & Safety Defence Costs and Investigation Costs.
• Pollution Defence Costs and Investigation Costs.
• Public Relations Costs and Expenses.
• Outside Directorships.
• Newly Created or Acquired Subsidiaries.
• Run-Off Cover for Subsidiaries.
• Extended Reporting Period.
• Extending Reporting Period (for Retired Insured Persons).
• Pecuniary Penalties.
• Statutory Liability.

What are some typical Claims Examples?

Directors & Officers Liability & Company Reimbursement
Claim:	Misappropriation of trade secrets.
Scenario:	The Managing Director of Company Z left to become the CEO of competing Company Y. After three months of serving as the CEO of Company Y, his previous employer Company Z sues the directors of Company Y for allegedly stealing trade secrets, confidential business information, and employees of Company Z.
Outcome:	The parties settle for $390,000 and Company Y agreed on restrictions on hiring Company Z’s employees.

Company (Entity) Liability
Claim:	Misrepresentation.
Scenario:	A Company verbally confirmed that it would enter into a contract with a firm of consultants causing the firm of consultants to turn away other offers of work. When the Company failed to enter into the contract, the firm of consultants suffered economic loss.
Outcome:	The Company was found to be legally liable to the firm of consultants and ordered to pay damages and the firm of consultant’s legal costs.

Employment Practices Liability Entity Coverage (EPL)
Claim:	Failing to provide a safe place of work, breach of contract.
Scenario:	The claimant was employed as a security guard with Company A who provided security services to Company B and was under direct supervision by C who was an employee of Company B. It was alleged that during his employment the as a security guard the employee of Company A was continuously subjected to harassment, duress, racial and sexual abuse, humiliation, unreasonable workloads and pressure, and threats of violence and financial harm by C. Upon learning of C’s conduct, Company B terminated C’s employment.
Outcome:	The employee of Company A was awarded almost $2 million in damages against Company B whose employee (C) was found to have bullied him. Damages against Company A, the employer of the bullied employee are yet to be determined.

Crime
Claim:	Direct financial loss sustained by the Company.
Scenario:	An employee of the Company who prepared cheque requisitions forged the signatures of the Company’s directors on a cheque. The cheque was made payable to the employee who used the funds to gamble at the local casino. By the time the fraud is discovered the funds cannot be recovered.
Outcome:	The Company claims for the direct financial loss that it has sustained under the Crime section of its Management Liability insurance policy.

Occupational Health and Safety Costs
Claim:	Occupational Health & Safety Defence Costs
Scenario:	During the construction of a commercial building, an employee of the Company was severely injured and left a paraplegic when a pile of debris accidentally fell on him. The Company was subjected to a full Occupational Health & Safety investigation and prosecution.
Outcome:	The Company vigorously denied and successfully defended all allegations. However, in so doing, the Company incurred Defence Costs of $150,000.

Statutory Liability
Claim:	Payment of a fine following a breach of Occupational Health & Safety laws.
Scenario:	One of the Company’s on-hired hospitality workers is injured when he slips on the floor whilst carrying a cleaning product, the product splashes into his eye and he now has to wear prescription glasses. There was a breach of the Occupational Health & Safety Act 1985 and your Company is fined $80,000 - this loss scenario should be covered by your policy.
Outcome:	Following an Occupational Health & Safety Investigation, it is determined that there has been a breach of Occupational Health & Safety laws and the Company is ordered to pay a fine of $80,000.