Management liability insurance: what it covers

What management liability insurance is and who needs it

Management liability insurance protects the directors and officers of a private company, and the company itself, against claims about how the business has been managed. It is a package aimed at small and medium companies and not-for-profit organisations. Listed companies buy separate directors and officers cover.

No law requires it. The reason people buy it is that running a company carries personal exposure. ASIC's guidance for directors explains that a director who allows a company to incur debts while it is insolvent may become personally liable for those debts. Directors can also face civil penalties and disqualification. Employees, regulators, creditors and shareholders can all bring claims.

What is usually covered, and common exclusions

A package usually has several sections, each with its own limit:

  • Directors and officers liability: claims against individuals for wrongful acts in managing the company, and defence costs.
  • Company liability: claims against the entity itself.
  • Employment practices liability: claims such as unfair dismissal, discrimination and harassment.
  • Statutory liability: defence costs, and some fines and penalties where the law allows them to be insured.
  • Crime or fidelity: theft of company money or property by employees.
  • Tax audit: professional fees for responding to an audit, as an option.

Some fines cannot be insured at all. In NSW, since 10 June 2020 it has been an offence to enter into, provide or benefit from insurance or an indemnity for a monetary penalty under the Work Health and Safety Act. Queensland's work health and safety laws contain a similar prohibition. Defence costs are a separate question. Check the wording.

Common exclusions:

  • dishonest, fraudulent or deliberate conduct
  • matters known before the policy started
  • claims arising from the company's insolvency, under many policies
  • bodily injury and property damage, which belong under public liability and workers compensation
  • professional advice to clients, which belongs under professional indemnity
  • unpaid wages and entitlements themselves
  • claims brought by a major shareholder.

Cover is normally written on a claims-made basis. The policy in force when a claim is first made and notified is the one that responds.

How it is sold, and when a broker is the usual route

  • Brokers: almost all management liability cover is arranged by brokers.
  • Underwriting agencies: specialist agencies write this cover on behalf of insurers, including Lloyd's underwriters, and usually deal only with brokers.
  • Direct insurers: a small number offer online policies for very small companies.

A broker is the normal route. Sections, limits and exclusions vary a lot between insurers, and the proposal asks for financial statements. Brokers and agencies must hold an Australian financial services licence or be an authorised representative. Check on the ASIC professional registers.

What makes this cover hard or expensive to get

  • Losses, negative net assets or overdue tax debts in the latest accounts.
  • A start-up with no financial history.
  • Industries with frequent insolvencies or employment disputes.
  • Past claims, regulator investigations or staff disputes.
  • Rapid changes in staff numbers, or a planned restructure.
  • A request to remove the insolvency exclusion.

Business policies generally carry a duty of disclosure. Every director should be asked about known disputes and circumstances before the proposal is signed. A matter left out may not be covered later.

Questions to ask before buying

  • Which sections are included, and what is the limit for each?
  • Is there one aggregate limit shared by all sections?
  • Is there an insolvency exclusion?
  • Are defence costs paid as they fall due?
  • Which fines and penalties are covered, given what the law allows?
  • Are past directors and subsidiaries covered?
  • What is the retroactive date?
  • What must be notified, and when?

Where to complain

Complain to the insurer in writing first and ask for its internal dispute resolution process. If the problem is the broker's advice or service, complain to the broker.

The Australian Financial Complaints Authority (AFCA) is the free external complaints body and accepts complaints from small businesses with fewer than 100 employees. Its rules cover only some kinds of business policy and exclude liability cover under a small business policy. Ask AFCA on 1800 931 678 whether your dispute, including one about a broker, is within its rules. If it is not, consider independent legal advice.

Find a licensed broker

Browse businesses licensed to arrange general insurance in your city, or search every state.

Sources

Last checked: 2026-10-06

Scroll to Top