MANAGEMENT LIABILITY CLAIMS EXAMPLES
ProRisk is able to provide competitive Management Liability quotations for Private Companies. Privately owned companies and their directors, officers and employees are exposed to the legal consequences of unintended errors arising from their daily actions. The companies also face the potential exposure of financial loss caused by employee dishonesty and similar conduct. Below are some claims examples that highlight the exposures faced by Private Companies.
Against Directors
A lender advanced moneys to shareholders in a private company to allow the shareholders to fund the company’s business. The lender took security over the shares held by those shareholders and later exercised the securities. The directors resolved to transfer the shares to the lender under the security. The minority shareholders sued the directors for wrongful conduct. The policy met the defence costs of the directors in ascertaining whether the shares ought to be transferred back to the minority shareholders.
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Investigation
An investigation was launched by the Australian Competition and Consumer Commission (ACCC) into the pricing practices of a group of liquor retailers. There was no allegation of a wrongful act however the investigation required the attendance of the directors of the insured. Ultimately the insured was innocent of any wrong doing however the policy paid for the legal fees incurred by the directors in obtaining advice for, and the legal representation required during, the investigation.
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Public Relations Expenses
After the successful conclusion of the investigation referred to above the directors consulted a public relations firm to advise on how best to restore the directors’ and the company’s previously strong reputation in the community. The public relations firm put together a media campaign in local publications which made it clear that the directors and the company were not in any way involved in any price fixing. The policy paid for the costs of the public relations firm.
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Employment Practices Claims
1. A disgruntled employee alleged that a manager sexually harassed her and sued both the manager and the company. Ultimately the action failed however the legal costs of defence were paid by the policy.
2. The company retrenched a number of staff due to a downturn in business. The method of retrenchment used by the company was on the basis of those employees that had been with the company for the least amount of time were the first to be retrenched. The retrenched employees were all women who saw this as discriminating against them based on their sex. They brought an action against the company alleging that these employment practices discriminated against women. The company was able to successfully defend the retrenchment policy however paid legal costs in defending the action. The policy indemnified the company for those costs.
3. An employee brought an action against his manager and the company alleging that they did not protect him from being bullied by fellow employees. The employee claimed that despite complaints, nothing was done to prevent the bullying and that as a result he was embarrassed, no longer able to work and that it had affected his relationships with his family and friends. Although the directors of the company were not aware of the bullying, the manager and company were both found liable for not providing a safe work environment. The policy paid legal costs as well as damages in connection with the suffering incurred by the employee.
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Against Entity
1. In the claim scenario in ‘Against Directors’ above, the company was also joined as a party to ensure that any orders were binding on it. It incurred significant costs through its participation in the litigation which were met by the policy.
2. A consultant sued the company alleging that it misrepresented that it would contract with the consultant, but failed to do so, causing the consultant to turn away other work and thereby suffered economic loss. The company was found liable to the consultant and the policy met the company’s liability, including for the consultant’s costs, and the company’s own defence costs.
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Employee Crime
1. An employee who prepared cheque requisitions forged the signature of the directors on a cheque. The cheque was made payable to the employee who used the funds to gamble. By the time the fraud was discovered the funds could not be recovered. The policy indemnified the company for its direct financial loss.
2. The owners of a retail store had suspicions that an employee who worked on the counter was stealing from the takings so they brought in an expert to investigate. The investigator was able to establish who was committing the fraud, how it was conducted and the amount defrauded. The policy indemnified the company for the loss as well as the cost of the investigator.
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Crisis Loss
A company sought cover under the policy for the costs of retaining a crisis management expert when they suspected product tampering that threatened the major contracts with customers. The crisis management expert was able to convince the customers that the tampering occurred after the product had left the company’s premises and did not represent a fault in the company’s production processes. The policy indemnified the company for the costs of the expert.
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Occupational Health and Safety
An employee was killed in the carrying out of his work duties as a result of a live electrical wire in the employer’s premises. Workcover commenced an investigation and later a prosecution of the company and 2 directors for failing to have in place a safe work environment in breach of occupational health and safety legislation and regulations. The policy met the directors’ costs of representation for the investigation and prosecution.
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Outside Directorship - Non Profit Organisation
A company required one of its directors to sit on the board of an incorporated not-for-profit entity as part of its contribution to the activities of that entity. Some of the members then claimed that the board of the entity incorrectly disbursed the funds available to the entity for its objectives. The costs of the company’s director were met under the Outside Directorship extension of its Management Liability policy.
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Pecuniary Penalties
1. In the Occupational Health and Safety scenario referred to above, orders were made for improvements to the work place and systems for ensuring safety. When those improvements were not completed by the time a further inspection occurred (through an explicable oversight), proceedings were taken and pecuniary penalties were imposed on the directors for breach of provisions in the relevant OH&S legislation. The policy met the penalties imposed on the directors and the defence costs of the proceedings.
2. A manufacturing company accidentally had a spill of harmful waste from its factory. The Environment Operations Act (NSW) imposed liability on the company and its directors for spillage and waste disposal. Penalties of up to $500,000 were possible for the directors, but the penalty imposed was $200,000. The spillage also caused pollution to a nearby waterway, putting the directors at risk of a further penalty of up to $250,000 and $60,000 for each day the offence continued. A further penalty of $200,000 was imposed. The policy indemnified the directors for the penalties.
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Pollution Defence Costs
The defence costs of the directors in the pecuniary penalty proceeding under the Environmental Operations Act above were met by the policy. The policy also met the legal costs of the directors in obtaining advice during the investigation which preceded the penalty proceeding.
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Retired Directors & Officers
A director retired from the board and sold his equity stake to the remaining directors. At renewal of the policy the remaining directors decided not to renew the policy in order to save on expenses. Five months later the company was placed in the hands of administrators who brought an action against the directors (including the retired director) for trading whilst insolvent. Ultimately the retired director was innocent of any wrong doing however the policy paid for the legal fees incurred in successfully defending the allegation of insolvent trading made against him and the legal representation expenses incurred in the examinations conducted by the administrators before the proceedings were commenced.
Note: The Claims Examples given above are illustrative, and by way of example only and should not be taken as an indication of how a particular claim will be assessed. Cover for a particular claim is determined by all the terms, exclusions and conditions of the policy depending on the specific facts assessed at that time. We recommend that a potential purchaser thoroughly examine our policy offered and consult with an appropriate expert to be certain of the precise nature of its details.
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BENEFITS OF A STRONG SECURITY
Established in 2003, ProRisk is an Underwriting Agency offering products primarily backed by Lloyd’s – a world leading insurance market for over 400 years. We understand that claims can take many years to settle, and the strength of the Underwriter is of critical importance in protecting your client’s assets. Lloyd’s has a S&P rating of A+ (Strong) and A.M. Best rating of A (Excellent) giving peace of mind for you and your client that if a claim eventuates we will be there when it’s needed most.
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DID YOU KNOW
In addition to Professional Indemnity insurance and Management Liability did you know that we can also offer:
 Public and Products Liability
Personal Accident
Specified Items in Transit (Tools of Trade)
Medical Malpractice
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Feel free to contact a member of the team with any queries.
ProRisk your problem solving underwriting solution.
Email: enquiries@prorisk.com.au
Phone: 03 9235 5255
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