The Risks of running your business
Most workshops will have adequate protection for their business assets via a Motor Trades or Business Insurance policy, however, the key economic exposure of the ‘management risk’ often remains uninsured.
Do you realise as a business owner that your own personal assets are on the line should you face a claim for the mismanagement of your company?
In today’s increasingly litigious society, interactions with customers, employees, competitors, creditors, regulators and shareholders can create liabilities for your company and also the individual directors and officers of the business.
Increasing compliance, greater public expectations of our behaviour, and, ever changing employment laws, all mean that what we once could expect to be normal business practice, is now the fuel of the legal profession. In recent times, there have been numerous high profile examples of people suing for sexual harassment in the workplace, however this is just one type of employment practices liability a business can be exposed to.
According to statistics, there are over 700 Commonwealth, State, and Territory Laws that impose personal liability on 2.1 million company directors in Australia. This means that key company individuals are automatically liable for any wrongful act resulting from their negligence or breach of duty, including legal action brought against them by unions and other labour advocates.
Dishonest acts by employees
These may include embezzlement of money or outright theft of products. It has been reported that Australian businesses lose upwards of $250 million to fraud. Out of this amount, 43% is never recovered, 49% is partially recovered, and only 8% is ever fully recovered.
Disgruntled employees will more often than not sue the company for anything ranging from harassment and bullying to wrongful dismissal. More than half of the Management Liability claims filed are related to employment practices. Under the Fair Work Act, there are more than 16,000 unfair dismissal claims per year processed, with the average cost of each claims in excess of $50,000.
Statutory fines and penalties
The most common claim under the Statutory Liability coverage involves charges of Occupational Health and Safety (OH & S) violations. Management has a duty to its employees to ensure the workplace is safe
Employers generally mean to treat their workers well, but when the interests of management and staff collide, things can get legally messy and business can grind to a standstill.
It is very difficult to adopt policies and procedures to protect you and your business against all of the above scenarios – even if you and your business are not at fault, you run the risk of getting caught up in expensive litigation, simply through unfounded allegations.
The exposures with managing a business are vast and varied. When a breach of company law or regulation is alleged, the focus is on your conduct as a manager and as a company.
Management liability protects both the individuals and the company in relation to exposures associated with managing a company.
Protecting you and your business against such exposures can be achieved through purchasing Management Liability Insurance. In essence, Management Liability insurance provides a suite of cover options that insures your personal liabilities as a manager or director of a business. It also protects the business itself from liabilities arising from your interaction with a variety of stakeholders.
Imagine the impact that any one of the following claim scenarios could have upon your business:
A former director was sued by the company for breaches of his duties.
The company alleged negligence in relation to poorly kept accounts, failed sales and production
The matter settled for $700,000 plus defence costs of $250,000
As the director’s assets had been frozen, assistance was also given in the form of Deprivation of Assets Expenses
A company and its directors were sued by a competitor for misleading advertising which allegedly caused damage to that competitor. Defence counsel were appointed for both the company and the directors and the company was able to successfully rebuff the allegations the costs totalled $70,000, however a further complaint was made to The Australian Securities and Investments Commission, who commences an investigation into our Insured company’s record keeping.
It requests production of documents, the documents requested include email and computer records and the Insured must review and produce hundreds of documents.
The documents need to be reviewed by legal counsel to preserve legal professional privilege.
The costs of the review are over $100,000.
As part of a “joke” in a workshop, employees would regularly walk past other employees and flick the private parts of their work colleagues. A supervisor in the workshop was involved in this act. On one occasion the supervisor played this “joke” on a new employee, who then reported the matter to the police. The supervisor was arrested and charged with “sexual assault”.
The company and the supervisor now face expensive legal costs and statutory fines not only on the above charge, but under OH&S laws for providing an unsafe workplace and also on Employment Practices Legislation for sexual harassment.
A driver climbed on top of the truck to check the load, he slipped because the ladder was damp. He suffered a minor cut and bruise to his left hand and lost no time off work. The owner was prosecuted for failure to provide a safe system of work.
The workplace had no OH&S policy for checking damp rungs on ladders or requirement to wear tread on boots or for carrying a towel for drying the ladder rungs when wet • Company was fined $50,000, plus legal costs of $60,000
A company had its identity cloned. The fraudulent company arranged access to necessary information and passwords and sent seemingly legitimate instructions for transfers to the company’s bank. The company was faced with a loss of $800,000
On the AASDN website is a Management Liability Insurance “Fact sheet” that explains the key covers that we can provide to you as the owner of your workshop.
Austbrokers ABS Motor trades have “exclusive” arrangements with a number of our key underwriting partners that have enhanced the traditional covers available and tailored then to meet the needs of workshops.
As the appointed broker for the AASDN network, we are here for you to provide the right advice and policies that meet not only your traditional workshop exposures but also those on the emerging risks that you all now face.