Management liability insurance: D&O, employment and statutory cover
Management liability insurance covers the risks of running a business rather than doing its work: claims against directors and officers for how they managed the company, claims by employees such as unfair dismissal or harassment, investigations and prosecutions by regulators, and theft by employees or outsiders. It is designed for private companies and not-for-profits, and bundles several covers that large companies buy separately, starting with directors' and officers' (D&O) liability.
It fills the gap between the covers most businesses already know. Public liability deals with injury and property damage, professional indemnity with mistakes in your professional services. Neither responds when a former employee claims they were unfairly dismissed, when a regulator investigates a workplace incident, or when a bookkeeper quietly diverts funds.
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General advice only. It doesn't consider your circumstances. Read the PDS and TMD before you decide.
What management liability insurance covers
Policies are built from sections. You can often choose which to include and set a limit for each, or accept a single limit shared across the policy.
| Section | What it covers | Example |
|---|---|---|
| Directors and officers (D&O) | Claims against directors and officers personally for wrongful acts in managing the company, and the company's cost of indemnifying them | A shareholder or creditor alleges a director breached their duties |
| Company (entity) liability | Claims against the company itself for management wrongful acts | A supplier sues the company over a misleading statement in a tender |
| Employment practices liability (EPL) | Claims by employees, former employees and job applicants | An unfair dismissal, discrimination, bullying or harassment claim |
| Statutory liability | Legal costs of investigations and prosecutions under laws such as workplace safety, environmental and privacy laws, and fines where insurable by law | A regulator investigates after a workplace injury |
| Crime | Theft of money or property by employees or third parties, including some electronic fraud | An employee diverts payments to their own account over two years |
| Tax audit (often optional) | Accountants' and advisers' fees to respond to a tax audit | The ATO reviews the business's GST returns |
Management liability vs D&O insurance
D&O insurance is one part of management liability. A standalone D&O policy protects directors and officers personally; a management liability policy adds cover for the company itself and the other risks of running it, which is why it suits private companies that don't buy each cover separately.
| D&O insurance | Management liability insurance | |
|---|---|---|
| Who it protects | Directors and officers personally, and the company's cost of indemnifying them | Directors and officers, plus the company itself |
| Main covers | Claims about how directors and officers managed the company | D&O plus company liability, employment practices liability (EPL), statutory liability and crime, and often tax audit |
| Typical buyer | Larger companies, often alongside other separate policies | Private companies and not-for-profits wanting the main management risks in one policy |
| How it's written | Claims-made | Claims-made |
What the law won't let insurance cover
Some liabilities can't be insured or indemnified at all, whatever the policy says, and management liability is where that line matters most.
The Corporations Act limits what a company can do for its officers. A company can't indemnify an officer against certain liabilities, such as a liability owed to the company itself or a pecuniary penalty order. It also can't pay the premium for insurance that covers an officer for liability arising from a wilful breach of duty to the company, or from improperly using their position or company information (sections 182 and 183), other than legal costs. A director can still buy that cover personally, but the company can't pay for it.
Work health and safety fines are the other big one. Under the model work health and safety laws, it is an offence to take out insurance that covers a WHS penalty, and a policy term that purports to cover one is void. Tasmania, for example, adopted the prohibition (sections 272A and 272B) in 2023. Policies can still pay the legal costs of defending a WHS investigation or prosecution, which is where the statutory liability section earns its place.
Who needs management liability insurance?
Any business that operates through a company has directors with legal duties. ASIC sums up the core of them: officeholders must act in the best interests of the company, in good faith and for a proper purpose. Directors can be personally liable when things go wrong, and not only in court: under the ATO's director penalty regime, directors can be made personally liable for some unpaid company PAYG withholding, GST and superannuation guarantee charge. Don't assume any policy covers those tax debts. The case for management liability grows with the number of people involved: employees (who can bring employment claims), investors and lenders (who can allege mismanagement), and regulators with an interest in what you do.
It is common for private companies with staff, for not-for-profit boards whose volunteer directors carry the same duties as paid ones, and for businesses preparing to raise capital or sell. A sole trader with no employees usually has little need for it, although crime and tax audit cover are sometimes available on their own.
Claims-made cover, and why the dates matter
Management liability is written on a claims-made basis, like professional indemnity. The policy that responds is the one in force when the claim is made against you and notified to the insurer, not the one in force when the conduct happened.
Two consequences follow. First, you have to tell the insurer about circumstances that might lead to a claim as soon as you become aware of them, during the policy period; a claim that arrives later is then treated as falling in that year. Second, if you let the policy lapse, a claim made after it ends is generally not covered, even if the conduct happened while it was running. When a director retires or the company is sold or wound up, ask about run-off cover, which keeps protection in place for claims made in later years about the past.
How much management liability cover do I need?
Start with how the limits are set. Some policies give each section its own limit; others share one aggregate limit for the year across every section, so a large employment claim can use up cover a director later needs. Defence costs matter too: if they're paid inside the limit, a long investigation can wear it down before any settlement.
Then size each section against your own risks: the number of staff for employment practices, the money that passes through your accounts for crime, the regulators you deal with for statutory liability, and the people and lenders who could pursue your directors. Contracts, lenders and investors sometimes set a minimum. Get quotes at more than one limit with everything else the same, and compare the price of each step up.
How to compare management liability quotes
Line up quotes on these points before you look at price:
- Which sections are included, and which are optional extras.
- The limit for each section, and whether all sections share one aggregate limit for the year.
- The excess (retention) for each section. Employment practices and crime often carry higher excesses.
- Whether defence costs are paid inside the limit or in addition to it.
- Crime cover details: whether employee theft is covered from the first dollar, and whether electronic funds transfer fraud is included or sub-limited.
- The continuity or retroactive date, and any prior or pending litigation exclusion date.
- Run-off options for retiring directors and on a sale or wind-up.
General advice only. This information doesn't take into account your objectives, financial situation or needs. Consider whether the product is right for you and read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you decide. We don't compare every product in the market, and we may earn a commission if you take up a product through our links.
What to watch for
- Notify circumstances early. On a claims-made policy, an unhappy former employee's lawyer's letter should go to your insurer now, not when proceedings are filed.
- Don't let cover lapse when you change insurer. A gap in continuous cover can leave claims about earlier years uninsured.
- A WHS fine can't be insured. Statutory liability pays for the defence, not the penalty.
- Check whether the company or the director is paying the premium for each part of the cover. The Corporations Act restricts what the company can pay for.
Common questions
What is management liability insurance?
A package of covers for the risks of running a company: claims against directors and officers, employment practices claims, regulatory investigations and prosecutions, and theft by employees or third parties. It is aimed at private companies and not-for-profits.
Is D&O insurance the same as management liability?
No. D&O insurance is one part of management liability: it covers directors and officers personally. Management liability adds cover for the company, employment practices liability (EPL), statutory liability and crime.
Is management liability insurance compulsory?
No law requires a private company to hold it. Investors, lenders and not-for-profit funders sometimes ask for D&O cover, and many people will only join a board if it is in place.
Does management liability cover unfair dismissal claims?
Usually, under the employment practices section, including the legal costs of defending the claim and any compensation awarded, up to the limit and after the excess. Check how the policy treats claims by casual staff and contractors.
Can insurance pay a work health and safety fine?
No. Under the model work health and safety laws it is an offence to insure against a WHS penalty, and any policy term that covers one is void. Insurance can still pay the legal costs of defending the matter.
Does management liability cover employee theft?
If the policy includes the crime section, yes, up to its limit. Check whether electronic funds transfer fraud and theft by outsiders are included, and how long after the theft you have to discover it.
General information only
This page explains how management liability insurance generally works. It is not legal or insurance advice. Directors' duties and the limits on indemnity and insurance are complex; speak to a lawyer and a licensed broker about your company's situation.