What is Management Liability Insurance?
Management Liability protects the individuals and the company in relation to the exposures associated with managing a company.
When a breach of company law or regulation is alleged, the focus is on your conduct as a manager and as a company. You may think a claim is completely baseless or without merit, but it will still cost time and money to defend successfully.
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Directors & Officers
Covers the Directors and Officers (including where the company can reimburse the directors) for any claim alleging a Wrongful Act (negligence, breach of duty, misrepresentations) by Director or Officer.
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Employment
Covers the Company for claims alleging an employment breaches including wrongful dismissal, discrimination, harassment, deprivation of career opportunity, breach of contract, etc.
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Company Cover
Covers the Company where there is a claim against the entity alleging the wrongful acts.
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Trustee
For trustees of staff superannuation fund.
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Crime
Covers the company for theft by it's employees.
Why do you need management liability?
- The exposures associated with managing a business are the vast and numerous and it is often the one exposure that is not addressed in insurance programs.
- All companies insure the tangible exposures of property damage and bodily injury, however the key economic exposure of the ‘management risk’ has often remained uninsured.
What are management exposures?
A company and it’s directors face both personal and corporate liabilities from numerous stakeholders, including: Shareholders, Employees, Competitors, Regulators, Customers, Liquidators / Administrators, Creditors.
Management Liabilities – Recent Claims Examples
Scenario: A supervisor was terminated by his employer for smoking in a restricted area of the building. The terminated employee sued his employer for wrongful termination based on age discrimination from comments made by the supervisor such as “you’re too old”. The employee further alleged he could only be terminated for good cause, although he had a history of poor performance issues. The dismissed employee sought back pay, front pay, damages, and legal fees totalling an estimated $275,000.
Outcome: The employer settled with the dismissed for $350,000 and paid $130,000 in defence costs.
Scenario: During a busy time, the Company employed a part-time contractor who caught his hand in a machine and lost two fingers. This resulted in a full occupational health and safety investigation.
Outcome: The Company was found liable for $100,000 plus $45,000 in defence costs.
Scenario: A debtor clerk misappropriated $200,000 by altering cheques received from debtors. The clerk named themselves as the payee, and continued a cycle of paying debtors accounts with funds from other debtors over a period of eighteen months. This continued until her absence from work when the fraudulent scheme was discovered.
Outcome: Total loss to the wholesaler amounted to $300,000.
Insured: Privately owned Company, employing 20 people and an annual revenue of $650,000.
Scenario: CEO of privately held company left to start a new software company and was subsequently sued individually as an officer of the new company by his former employer. The allegations included trademark infringement and unfair competition as the former employer claimed that he had taken a corporate license to market a particular software product.
Outcome: Defendant settled for a payment of $250,000 with expenses of $130,000.
Scenario: Company ‘A’ sued directors and officers of competing Company ‘B’ after three employees of Company ‘A’ left to join Company ‘B’. Company ‘A’ alleged that the three were still in the employment of Company ‘A’ when they began sharing proprietary information with Company ‘B’. Company ‘A’ claimed theft of trade secrets.
Outcome: After one year of legal proceedings the case settled with Company ‘B’ paying Company ‘A’ a $160,000 settlement and incurring $355,000 in defence costs.
Cyber Liability Insurance?
You don't need to be operating a technology business to think about cyber liability insurance. The fact is, Cyber Crime can affect every business and you need to be adequately protected in case it happens. Watch the video to find out why your business needs to be protected.
Find out more by reading the Norton and Steadfast insights reports below.
Cyber Liabilities – Recent Claims Examples
Background: An employee sent an email out to the customer database letting them know about a special sale available to them. Instead of attaching a copy of the flyer they accidentally attached a spreadsheet containing customers’ personal details.
Policy Response: First Party and Third Party Costs
Outcome: The First Party and Third Party Costs sections of the policy responded with $250,000 paid for:
Notification costs and credit monitoring services for all affected customers
Legal costs and expenses associated with settling the legal proceedings initiated by some customers
Background: A retailer emailed a group of customers to promote a sale with special discounts available to them. The retailer intended to attach a copy of the flyer detailing the discounts but instead attached a copy of a spreadsheet that contained a customer list, including customer names, addresses and credit card information.
Result: The retailer was required to notify all affected customers of the error and offered credit monitoring services. Several of the affected individuals began legal proceedings against the retailer. The notification and credit monitoring costs totaled $50,000, and the amount to settle the legal proceedings with the retailer’s customers combined with the associated legal costs and expenses totaled $100,000.
Solution: A Cyber Insurance Policy provides coverage for breach of privacy which includes legal costs, indemnification of third parties and crisis management costs.
Background: A company accountant of a local manufacturing firm received an email from her boss asking her to transfer $120,000 to a supplier abroad. Because this was a common type of request, she processed the payment before realising that the tone of the email wasn’t right and the domain name was a single letter off. Upon further investigation, it was found that cyber thieves had infiltrated their systems and grew knowledgeable enough about company dealings to send a convincing phishing email that lost the company thousands of dollars.
Result: The company lost the $120,000 and incurred costs to secure their IT system.
Solution: A Cyber policy provides coverage for the loss of money caused by phishing scams and the costs to secure IT systems.
Background: An IT company misplaced multiple drives that contained personal information for over one million customers. It was unknown whether the drives were lost, stolen or destroyed. The IT company was required to notify the affected individuals, as well as the privacy regulator. The regulator conducted an investigation into the incident and fined the company for failing to have appropriate safeguards in place to protect customer information.
Result: The company incurred legal fees of $1,000,000 in connection with the regulatory investigation and defending legal actions brought by affected customers and for the costs and expenses in notifying customers their personal information had been lost, stolen or destroyed. The company was also fined $75,000 by the privacy regulator. The total loss to the company exceeded $5,000,000.
Solution: This type of scenario triggers multiple Insuring Clauses under a Cyber policy including privacy fines and investigations.
Background: A hotel started a blog to convey information to customers and the public. The blog page contained a logo/image that was similar to a design that had been copyrighted by another entity. That entity sent a letter demanding the company remove the image. Negotiations between the parties failed and the other entity began legal proceedings against the hotel.
Result: The entity (plaintiff) demanded more than $5 million in damages. Defence costs and expenses incurred so far exceeds $1 million, and the case has not yet gone to trial, so it’s expected these costs will increase.
Solution: A Cyber policy provides coverage for breach of copyright under the Multimedia Insuring Clause.