Employees and members - the focus for management liability

While COVID-19 vaccination claims haven’t reached the volume that may have been feared, other employment claims continue to dominate. But could a simple step in the process save insureds a lot of time and money?

BY MARTIN WANLESS

W hen it comes to risk management for any business, only a multifaceted approach will truly have the requisite impact needed.

And that’s no surprise – the world businesses are operating in is increasingly complex, with emerging and evolving risks, which are compounded from an insurance perspective by a market that’s been challenging to say the least.

“In uncertain economic times, claims increase in number and value under Management Liability (ML) policies,” says Matt McPhee, Berkley Insurance Australia.

“Crime/theft claims are more prevalent, employment practices liability (EPL) claims increase and claims against directors are more likely.”

Maya Lazarus, Brooklyn Claims Manager, says most of their management liability claims come from EPL.

“We expected to see more unfair dismissal claims around the vaccine mandate, but we haven’t, and most of the claims are on the back of performance management, mostly in blue-collar industries,” he says.

“The main hotspots continue to be EPL, sexual harassment and crime,” says Christian Garling, Managing Director of FTA Insurance.

“Occupational health and safety, and the investigations and fines that go with that, are also a concern.

“Many states in Australia have made the insurance of penalties uninsurable now. It’s good in the sense that the penalty is now no longer insurable if it relates to constructionrelated issues, but the defence costs are still insurable and the defence costs are often the same or more than the actual penalty.

“Although there is some reduction in loss history due to the removal of the penalty, the defence costs make up the majority of the cost, so it remains high.”

THE IMPORTANCE OF CYBER AWARENESS

Cyber is an ever-present threat, which Lazarus says SMEs are still not placing enough importance on.

“We still see SME insureds not placing enough importance, awareness and investment in upgrading their IT systems and cyber security, even post-COVID-19.

“Working from home arrangements have created an additional exposure, especially for SME insureds that are not tailored for the new work environment. This resulted in an increase in social engineering claims and fidelity claims by employees. Some of the latter have been going for a significant period undetected.”

Lazarus also says that there has been an increase in claims against not-for-profit social groups following the expulsion of a member.

“The disgruntled member then challenges the organisation’s rules and we have seen these matters taken all the way to the Supreme Court. Post-COVID-19, people are adjusting to socialising again in groups and at times, this can lead to expensive legal battles.”

“WE STILL SEE SME INSUREDS NOT PLACING ENOUGH IMPORTANCE, AWARENESS AND INVESTMENT IN UPGRADING THEIR IT SYSTEMS AND CYBER SECURITY, EVEN POST-COVID-19.”

– MAYA LAZARUS, BROOKLYN CLAIMS MANAGER

WHY INFORMED CLIENT CONVERSATIONS ARE STILL ESSENTIAL

When working with management liability clients, it’s important that insureds understand fully what the policy covers, says McPhee.

“The cover provided by ML policies remains poorly understood by insureds. In our opinion, brokers should clearly outline the cover provided, remind insureds about the claims made and notified basis for ML policies, and encourage them to make timely notification of claims to prevent the effects of late notified claims.”

Lazarus believes that by emphasising the role management liability plays within an overall risk management strategy, brokers can have more considered conversations with clients.

“We believe the most impactful way to emphasise why a management liability policy is an essential part of a company’s risk management is by sharing war stories (claims examples) and the total incurred for claims that would have hit the insured’s back pocket if they didn’t have an ML policy in place,” he says.

“These figures can be quite scary. Employment claims, for example, can be highly emotional, driven at times by animosity from both sides, which means there is a lot of to-ing, and fro-ing, negotiating not with the claimant but with the insured. Therefore, legal costs are at times not in proportion to the settlement payout.”

With EPL a major source of claims, it’s important for businesses to understand the best course of action when dealing with terminations and redundancies, and a fundamental piece of the process may be regularly overlooked.

Garling says, “The best course of action for an insured thinking about making somebody redundant or terminating their employment is to get legal advice.

“The most common thing we see is insureds proceeding without legal advice – legal advice is not expensive in comparison to a situation ending up in court, and lawyers will tell you exactly what you can and can’t do and how you should do it.”

And that’s just one of several conversations brokers can have as part of a broader risk management process that will help keep clients close.

“A broker that provides risk management strategies to clients will keep those clients for longer and build deeper relationships with them,” says McPhee. “Risk management steps like ensuring safety standards are documented and enforced can save clients time and money in the long run.”

“THE BEST COURSE OF ACTION FOR AN INSURED THINKING ABOUT MAKING SOMEBODY REDUNDANT OR TERMINATING THEIR EMPLOYMENT IS TO GET LEGAL ADVICE.”

– CHRISTIAN GARLING, MANAGING DIRECTOR OF FTA INSURANCE

THE IMPORTANCE OF RISK MANAGEMENT AND MANAGEMENT LIABILITY

A business with a well-documented and enforced WH&S procedure was able to successfully negotiate a workplace investigation that threatened to shut down the whole business. The insured kept their WH&S procedures documented, and new employees were thoroughly inducted before they were allowed to enter the workspace.

When an incident did occur, the insured was able to show the investigator their WH&S procedures and demonstrate that all employees were fully briefed.

The result was that the investigator finalised their report without an adverse finding against the business, and the business carried on uninterrupted. The management liability policy paid the costs of the WH&S investigation.