Why construction businesses need management liability insurance

Directors’ and officers’ liability

Management liability insurance protects the personal assets of directors and officers in case of claims alleging negligence, breach of duty, or mismanagement. Construction businesses can be exposed to such claims, especially when decisions affect project timelines, client relationships, or financial performance. Without management liability insurance, directors could be personally liable for defence costs, fines, and settlements.

Example: An electrical contracting company’s managing director faced legal action for allegedly stealing trade secrets after leaving for a competitor. The company incurred over $200,000 in defence costs, ultimately settling the case for $210,000. Management liability insurance covered the legal expenses and settlement, preventing personal financial ruin^1.

Employment practices liability

In the construction industry, employment-related claims, such as wrongful termination, harassment, or discrimination, can arise unexpectedly. Management liability insurance covers the costs of defending the company against such claims, whether the allegations are substantiated or not. This coverage helps mitigate financial losses related to employee disputes.

Example: A female carpenter filed a sexual harassment claim against her supervisor and the construction company. The company faced substantial legal costs and eventually agreed to a $205,000 settlement. Management liability insurance helped cover these expenses​¹.

Occupational Health and Safety (OHS) violations

Construction sites are inherently risky, and workplace accidents can lead to OHS investigations, fines, and even criminal charges.

Management liability insurance covers the cost of defence, fines and penalties under some statutes e.g. Work Health and Safety (fines under Work Health and Safety cannot be covered by insurance in NSW, VIC & WA).

Example: An electrical contractor faced a $450,000 fine and $100,000 in defence costs after an OHS investigation found negligence in a worksite accident where an employee was seriously injured. Management liability coverage helped cover the hefty fine and legal costs​¹.

Protection against financial crimes

Internal fraud and embezzlement can be particularly damaging to construction businesses, which often handle substantial financial transactions. Management liability insurance includes coverage for losses related to employee fraud, such as embezzlement or theft of materials, protecting the company from significant financial losses. 

Example: A project management company discovered that an employee had misappropriated $80,000 of client payments to support a gambling addiction. The company used management liability coverage to recover the stolen funds, mitigating the financial impact​¹.

Coverage for tax investigations

Construction businesses can be subject to audits from the Australian Taxation Office (ATO), which can be time-consuming and costly. Management liability insurance provides coverage for the professional fees required to handle these audits, ensuring that the business can comply with tax regulations without bearing the entire financial burden.

Example: A plumbing company was audited by the Australian Tax Office, incurring nearly $88,500 in legal and accounting fees to prepare the necessary audit reports. Management liability insurance reimbursed these costs, allowing the company to remain financially stable during the process¹.

Crisis management assistance

Unexpected crises, such as the sudden loss of a key executive, can disrupt business operations. Management liability insurance can provide coverage for crisis management services, such as hiring consultants to stabilize the company and reassure stakeholders, ensuring continuity during difficult times. 

Example: After the sudden death of a senior manager, an electrical contracting company used its management liability coverage policy to hire a crisis management team. The insurer covered $28,500 in fees to maintain client relationships and manage the business transition​¹.

For construction business owners, comprehensive protection provided by management liability insurance is essential. Whether facing employee disputes, OHS violations, or internal fraud, management liability insurance shields both the company and its leadership from potentially devastating financial losses.

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References

1. Claims Scenarios: ML Trade 06.20, DUAL Australia.

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