A collection of real-life situations that highlight the vital role of Management Liability Insurance. From workplace incidents to legal challenges, these stories illustrate how our comprehensive coverage safeguards businesses like yours from financial and reputational risks.

Workplace Health and Safety

Coverage Section: Directors and Officers Liability

Insured: Engineering firm with over $5 million in annual revenue

Two months after maintenance was performed on a piece of machinery, it collapsed killing a worker and injuring two other people. A subsequent investigation determined that bolts on the machinery replaced by the Insured were faulty. The bolts were sourced through the German manufacturer of the machinery. The Insured was brought into the claim despite performing the maintenance work according to their policies and procedures.

After 7 years in court, the prosecution dropped all criminal charges against the Insured with no adverse findings. The Insured incurred over $800,000 in defence costs which were covered under the Directors and Officers Liability coverage section.

Payroll Fraud

Coverage Section: Crime

Insured: Leisure industry company with over $5 million in annual revenue

The Insured hired a part time accounts officer but within 12 months the employee was terminated due to unsatisfactory work. Three months later employees of the Insured reported that their superannuation had not been paid. The finance manager discovered 271 suspicious transactions to one bank account. During a forensic accounting investigation, it was found that the bank account belonged to the former accounts officer and a total of 740 payments had been made totalling $819,000. To make the payments, the accounts officer circumvented dual sign off controls by gaining an additional security token for the Insured’s internet banking portal.

Total loss to the insured was over $800,000 which was covered under the Crime section in the Management Liability policy.

Vendor Impersonation

Coverage Section: Crime

Insured: Professional services company with over $5 million in annual revenue

An Insured received an email request from a vendor asking them to update their bank account details. This was actioned by the Insured’s Accounts departments and payments were made to the new bank account. It was later discovered that the email was sent by a fraudulent party. It had been doctored to resemble the vendor’s email address and included earlier correspondence between both parties. The loss investigation discovered that the fraudster had also hacked into the Insured’s IT systems and altered email rules to conceal the fraud.

The total loss was over $90,000. This included investigation costs to identify potential privacy breaches after their IT system had been compromised. All loss was covered by the Crime Coverage section.

Breach Of Shareholder Agreement

Coverage Section: Directors and Officers Liability

Insured: Health product retailer and distributor with under $10 million in annual revenue

A claim was brought against two of the insured’s directors (50% shareholders) alleging they had refused to reappoint a representative of the claimant to the Board. The claimant also alleged various other breaches of the shareholders agreement, including minimum number of directors, not acting in the interest of the company and acting in a manner oppressive to other shareholders.

The Insured’s directors denied any wrongdoing and spent two years defending the claim in court. The claim eventually settled for $200,000 with an additional $300,000 in legal defence costs. All defence costs were covered under the Directors and Officers Liability coverage section.

Insolvent Trading

Coverage Section: Directors and Officers Liability

Insured: Home solar installation company with under $10 million in annual revenue

The Insured experienced financial difficulties because many customer invoices went unpaid or only partially paid. Due to this financial stress creditors voted to put the company into liquidation. Once administrators had been appointed they brought an action against directors of the company seeking repayment of loss under Section 588M(2) of the Corporations Act 2001.

At the end of a litigation period of three years the charges against the directors were ultimately dropped with no adverse findings. The total defence costs incurred were $590,000 under the Directors and Officers Liability coverage section.

Breach of Director’s Duties

Coverage Section: Directors and Officers Liability

Insured: Medical practice with under $10 million in annual revenue

A director and current shareholder of the Insured brought a claim seeking damages against the Insured. They ordered the Insured to buy back $2 million worth of the claimant’s shares or alternatively wind up the company. The claim was brought due to an alleged breach of a shareholder agreement by the Insured and its board of directors. There were also allegations against a director for receiving unauthorised salary and breach of duty (conflict of interest) when her own business was to be acquired by the Insured.

The case was successfully defended in favour of the Insured but not before they incurred $460,000 in defence costs which were covered under the Directors and Officers Liability coverage section.

General Employee Protection

Coverage Section: Employment Practices Liability

Insured: Real Estate Agent with over 30 employees

A claimant alleged that the Insured took adverse action against her rights to lodge a Workers Compensation claim and to be absent from work under the Workers Compensation Act. The claimant’s employment was terminated due to misappropriation and misuse of confidential company information. At the time of the misappropriation, the claimant was absent from work on Workers Compensation. The claimant also made allegations of bullying and inappropriate contact against the CEO, threatening to contact media outlets if her demands were not met.

After mediation, the matter was settled with the claimant for $75,000. Under Employment Practices Liability coverage, the final settlement amount was covered along with defence costs. The total loss was $130,000.

Income Tax Audit

Coverage Section: Tax

Insured: Construction Company with 11 employees and over $1 million turnover

An insured building company with over 100 sub-contractors received a notification from the ATO advising that it intended to audit the insured’s income tax and fringe benefits tax records for the period ending 30 June 20016 to 30 June 20017. The Management Liability coverage provider assisted by appointing Specialist tax accountants to complete the audit. Due to the complexity of the audit, the whole process took over 6 months and costs incurred in the process totalled $48,000.

It was deemed that the Policy was triggered. The Tax Audit Costs incurred were deemed to be necessary and reasonable and the insured was reimbursed. Payment: $48,000 less its deductible.

Online Misrepresentation

Coverage Section: Corporate Entity Liability

Insured: Machinery and Equipment Manufacturer with 8 employees and $1 million turnover

A claim was made against the Insured by a competitor, alleging that they used Google AdWords Advertising to misrepresent their ability to provide the same products and services as the Claimant.

The Insured was able to claim under the Entity section of the Policy and were covered for legal defence costs and settlement to the Claimant. Payment: $42,000.

Sudden Passing Of A Senior Partner

Coverage Section: Crisis Containment

Insured: Accountant with a staff of 5 and a turnover of over $2 million

An insured accountancy practice was thrown into crisis mode with the unexpected death of its Senior Partner. This partner was responsible for approximately 50% of the company’s business with many longstanding high net worth clients who did not wish for any other partners to handle their business.

It was deemed that the Insuring clause was triggered and indemnity was granted under the policy. The company incurred $28,500 in retaining the services of an external crisis management company to develop a crisis management plan, including providing specialist communications to clients to ensure that their business would be looked after and overseen by the other two equally competent partners. In the circumstances, the insurer deemed that the crisis containment extension of the policy was enlivened. Payment: $28,500.

Pollutants from a Farm Site

Coverage Section: Statutory Liability

Insured: Farmer with a staff of 7 and a turnover of over $4.5 million

An insured farming operation was fined $40,000 for causing pollutants to escape from a building site.

The policy was triggered and indemnity was extended to the Insured. The Insured was made to pay the fine of $25,000 and it was deemed to fall within the cover provided under the Statutory Liability section of the Policy. Payment: $25,000 less its deductible.

Legal Dispute Over Advertising

Coverage Section: Directors and Officers Liability

Insured: Restaurant, Sole Trader with a staff of 4 and a turnover of over $350,000

A marketing firm was sued for misleading and deceptive conduct by one of the Insured’s competitors for advertising that the Insured restaurant employed a celebrity chef when this particular chef was actually employed by the competitor. The marketing firm then joined the Insured Sole Trader to the proceedings alleging that they provided them with a verbal and written statement that this celebrity chef was employed in their restaurant.

The Policy was triggered and indemnity was extended to the Insured. The claim was ultimately settled out of court for the amount of $50,000. The Insured agreed to pay half the settlement with their marketing firm paying the remainder. Payment: $20,000.