Management Liability Insurance | When good leaders face bad claims

By Rouen van Eck and Carien Ahdar

Why directors’ personal assets are on the line

When we talk to business owners about their insurance programme, they’ll tell us about their buildings, their stock and their public liability. They rarely mention the people making the decisions. Management Liability insurance protects businesses and their leadership teams, particularly directors’ personal assets.

This cover is designed to protect the company and its directors, officers and managers against claims arising from how the business is managed. It provides coverage for key exposures including directors’ and officers’ liability, employment practices claims, statutory and regulatory investigations and some company reimbursement costs.

Directors and companies face increasing regulatory scrutiny and higher risk of claims from regulators, employees, shareholders or third parties. This cover plays an important role in safeguarding both the personal assets of decision makers and the financial stability of the business.

Three important exposures most businesses are missing:

1. Employment Practices Liability: the SME blind spot

The Fair Work Commission received 44,075 applications in the 2024-25 financial year, a 10% increase from the previous year and the highest annual figure since the introduction of the Fair Work Act in 2009. Many SME owners believe this only affects large corporates, but employment disputes hit businesses of all sizes.

“Employment Practices Liability insurance provides SMEs with access to experienced employment lawyers to defend claims arising from wrongful termination, workplace harassment, discrimination and breaches of employment contracts,” says Carien Ahdar, Senior Financial and Professional Risks Insurance Broker at DKG. “Provided that the insuring clause is triggered, defence costs are covered even where allegations are unfounded. This provides businesses with critical support when it is needed most. Early engagement of specialist employment lawyers also assists in managing procedural risks and mitigating potential exposure.”

Claims relating to workplace bullying, sexual harassment, discrimination based on protected attributes, and allegations of hostile work environments, often accompanied by mental health and psychological injury claims, are becoming increasingly prevalent, particularly those linked to workplace stress, anxiety and alleged psychological harm.

When an employee alleges discrimination during a restructure, legal defence costs can quickly escalate.

Without Employment Practices Liability cover, the businesses’ balance sheet takes the hit. Smaller businesses face the biggest proportional impact because they may lack in-house HR and legal resources to handle these matters.

Most Employment Practices Liability policies impose a strict policy condition for insureds to notify insurers and engage the insurer’s approved legal panel at the first indication of a potential employment dispute.

2. Statutory Liability: the regulatory maze

Australia has complex legislation spanning federal, state and local levels. Business owners are exposed to liability for breaches that are not ordinarily on their radars and subject to strict liability. Strict liability refers to legal responsibility for an offence or loss without the need to prove fault, negligence or intent.

SafeWork NSW prosecutions also show directors being fined personally for workplace safety breaches. In August 2025, two directors were each fined $84,375 following a fatal incident at an indoor climbing facility, with the corporate defendant fined $281,250. In November 2024, a director was fined $50,000 with the company fined $400,000 following a workplace injury SafeWork NSW. These fines are imposed in addition to legal defence costs, which often exceed the fines themselves.

“Statutory Liability extends beyond workplace safety to environmental breaches, trade practices violations, continuous disclosure obligations for listed companies, privacy breaches and licensing non-compliance,” explains Rouen van Eck, Executive General Manager, Insurance, Risk and Strategy at DKG. “Coverage includes defence costs and fines where legally insurable.”

The regulator could launch an investigation when a business unknowingly breaches workplace health and safety regulations. Directors face potential personal prosecution despite having no direct involvement in the day-to-day operations. Legal defence costs accumulate rapidly, even before any determination is made.

Unlike some other business insurance responding to third-party claims, claims for statutory breaches are initiated by regulators with investigative powers and near unlimited resources. Regulators actively pursue prosecutions to set precedents and deter non-compliance across entire industries.

3. Investigation costs: innocent until financially devastated

Although business owners understand they may face claims and/or litigation, they often underestimate the time required in responding to this and the potential financial devastation.

In the last 12 months, ASIC doubled the number of new investigations and nearly doubled the number of new matters filed in court. When a regulator launches a formal investigation, it requires document production, interviews and legal representation. These investigations often run for 18 months or longer. Defence costs accumulate throughout the entire process, regardless of outcome.

“Investigation costs coverage is designed to respond to formal investigations by ASIC, ACCC, Fair Work Commission, ATO and industry-specific bodies,” says Carien. “Coverage should include legal representation, forensic accountants, public relations support and document production costs, all before any determination of wrongdoing. An experienced liability broker can negotiate tailor made amendments to the policies for appropriate cover rather than only relying on the off-the-shelf versions of policies available.”

The reality is stark. Many investigations conclude without any charges being filed, yet the business and directors have incurred substantial defence costs throughout the process. During lengthy investigations, the business and directors struggle to focus on running their business while managing the investigation response, legal meetings and document production requirements. The company’s and directors’ reputation suffers even when fully exonerated, as the investigation itself often becomes public knowledge.

Standard business insurance does not respond to investigation costs. Off the shelf Management Liability policies may only trigger the policy when a formal claim is made. Regulatory investigations sit in a grey zone where the business and directors desperately need professional support.

Why this matters now

Regulatory intensity is increasing across all sectors. ASIC has intensified enforcement activity, imposing record penalties and securing lengthy prison sentences for financial fraud offences ASIC.

Allegations go public instantly on social media, increasing reputational damage and stakeholder pressure for accountability. What once stayed contained within employment tribunals now becomes front-page news within hours.

Workers understand their legal rights and pursue formal claims around discrimination, harassment and psychological safety. The conversation around mental health in workplaces has emboldened employees to raise concerns that previously went unreported.

Legislative changes continue to expand director obligations. Privacy laws, workplace safety requirements and environmental regulations all create additional personal liability exposures for directors.

Getting the policy right

Management Liability policies need careful construction. Off-the-shelf policies leave gaps that only become apparent when claims emerge.

Standalone limits matter. Each coverage type (Directors and Officers, Statutory Liability, Crime, Employment Practices) should ideally have its own limit. Aggregate limits pool all claims under one cap with one major claim potentially eroding the policy limit for other exposures. Experienced liability brokers can explain this in detail and have meaningful discussions around policy structure and limits to hedge against these exposures.

Bespoke to your business. The policy must match your specific business and industry. Business descriptions must be accurate and coverage needs to reflect actual operations and risk exposures. A manufacturing business faces different statutory risks than a professional services firm. A listed company requires different coverage than a family-owned private business.

Share current financials. Providing your latest financials can protect against insolvency exclusions or versions thereof. These exclusions disqualify claims alleging insolvency or acts of insolvency under the Corporations Act. The insolvency exclusion triggers at precisely the moment when directors need support most. An act of insolvency includes allegations that the company cannot pay its debts as they fall due. Sharing updated financials with your broker helps structure the policy to minimise this risk. Your specialist liability broker can assist with practical ways to maintain the confidentiality of your financials.

Understand confidentiality. Most Management Liability policies include confidentiality conditions regarding the policy’s existence and details. This is aimed at preventing signalling vulnerability to potential claimants. Insurers do not readily issue a certificate to disclose to third parties. Expert liability brokers can explain the process involved to secure the insurer’s permission for limited disclosure where indicated.

Directors should read and understand their policy. Despite confidentiality clauses, directors should and are encouraged to understand their Management Liability policy cover. A specialist liability broker will offer to discuss these with boards of directors and answer their questions.

SME vs Corporate cover

For SMEs (up to $99 million revenue in Australia), Management Liability combines all covers in one cost-effective policy. This approach provides comprehensive protection across multiple exposure areas without requiring separate policy negotiations and renewals.

“Corporate customers, and even some SMEs, need standalone policies with separate Directors and Officers, Crime and Statutory Liability covers,” explains Rouen. “Corporate structures require more tailored coverage with higher limits and greater flexibility to adjust individual coverage types as risks evolve.”

Both approaches need the same careful attention to policy construction. The difference lies in how the coverage is packaged and the limits available.

Common extensions

Beyond core coverage, these extensions address specific exposures:

• Extended reporting periods (run-off cover) protect directors after the end of their tenure, or after the company is sold or wound up.
• Tax audit cover reimburses professional fees incurred responding to detailed tax audits by the ATO.
• Side A DIC (Difference in Conditions) provides coverage when the company becomes insolvent and cannot indemnify directors.
• Side A Lifeboat cover protects directors personally when the company’s financial position prevents it from meeting its indemnification obligations to its directors.
• Side C covers entity securities claims, relevant for listed companies.
• Cyber coverage addresses data breaches, privacy violations and cyber extortion, which, dependant on the product, could be bundled into Management Liability policies for SMEs.
• Kidnap and ransom coverage protects businesses with operations or travel in high-risk regions.
• Crime coverage indemnifies losses from employee and third party theft, fraud or dishonest acts. An experienced liability broker can explain the difference between full crime cover and limited fidelity cover afforded under the policy.

What this means for your business

Management Liability protects good leaders from the reality and liability associated with business operations. Directors making reasonable decisions in good faith still face personal financial ruin from allegations, investigations and regulatory actions.

“We map the specific exposures based on your industry, size, ownership structure and operational complexity,” explains Carien. “A family-owned manufacturer faces different risks than a tech startup with venture capital backing. A business undergoing rapid growth or restructure faces heightened employment practices exposure. A business in a heavily regulated industry faces greater statutory liability risks. This is just one of the plethora of compelling reasons to engage with an experienced liability broker for the placement of appropriate and tailor-made cover.”

A gap exists between what standard business policies cover (usually nothing for Directors personally) and where potential exposure exists. Public liability does not cover employment claims. Professional indemnity doesn’t cover statutory prosecutions. Business insurance packages rarely include any personal protection for directors.

“The real value becomes clear when a director calls us because their business is facing a regulatory investigation and they have the appropriate and tailor-made coverage in place,” says Carien. “That validation of why this protection matters makes all the difference when personal assets are at risk.”

Want to discuss your Management Liability coverage?

Contact us to talk through your specific situation and ensure your leadership team has the protection they need.

To arrange a comprehensive policy review, contact Rouen, Carien or the DKG team on 1800 252 926 or email insurance@dkg.com.au.

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