Article October 19, 2021

Popular management liability insurance myths debunked

Management liability insurance can appear more complicated than it is and cause some businesses to think they don’t need it.

Simply put, management liability is a modular insurance product covering directors and officers liability (D&O), employment practices liability (EPL), entity cover, statutory liability, employee fidelity, cyber & privacy and kidnap & ransom. 

Management liability is there to protect the management of the company, its employees and sometimes the entity itself whenever there is an allegation of potential wrongdoing which needs to be investigated or defended. 

To help you explain the value of management liability insurance to your clients, we’ve put together five of the most common misunderstandings businesses have and how you can respond to them.


  1. ‘We’re not big enough…’

Irrespective of a company’s size, any director or officer can have an allegation of wrongdoing made against them in the course of their management duties which may need to be investigated or defended, even if the case doesn’t reach court. Not only can this prove costly, but if a company is unable or unwilling to assist, the director or officer in question may need to foot the costs themselves if D&O cover isn’t in place to protect them.


  1. ‘We outsource HR…’

Smaller companies will often look to outsource human resources (HR) and may wrongly believe that this will absolve them from liability for employment-related issues. An outsourced HR company will assist with establishing policies and creating an employee handbook, but because they don’t sit within the company and aren’t immersed in the culture, it’s unlikely they will recognise potential issues as they develop. By the time a problem arises, it may be too late to mitigate. Having an insurance policy that helps direct employers can save a significant amount in defense and potential settlement costs.


  1. ‘We’re a family-run business…’

Unfortunately, some of the most contentious claims that insurers see are from family-run businesses, whether this is a husband and wife led company or a second/third generation business.  We’ve seen acrimonious divorces spill into disagreements within companies, as well as multi-generational family businesses where family members are pulling in different directions. These types of organisations can see insured vs insured, wife vs husband or cousin vs cousin claims; they can be emotive and therefore protracted, which leads to significant defense costs.


  1. ‘We’re a private company…’

Many individuals believe that because a company is private that their liability is limited. However, the limited liability only protects the shareholders to the extent of their investments. This is does not reflect on the directors or officers of a company whose liability is unlimited. Therefore, if they do not have D&O insurance and the company is unable or unwilling to protect them, the directors and officers will have to support their own defense.


  1. ‘It’s too expensive...’

Generally, for small to mid-market companies, the product is fairly standardised and will therefore be relatively inexpensive. If a company is ASX listed operating in multiple territories, their D&O requirements will be more bespoke and therefore be much more expensive.


To find out more about CFC’s management liability insurance, contact the team at