Time to take cover

Time to take cover

Stuff happens – and when it does, it’s good to be covered. Many types of Real Estate Professional Indemnity policies don’t cover exposures relating to management practices. Make sure your policy includes Management Liability cover for protection of your bottom line. Story by Matthew J. Denehy.

"Whilst many employers will feel that a claim made against them is baseless, it’s still costly for them to defend it."

"As your business grows and becomes more complex, it’s harder to stay on top of everything that’s required of you – which can leave your company (and your bottom line) exposed."

There’s no doubt about it – running a successful Real Estate practice requires a lot of knowledge and a variety of skills. It can be hard for any one individual to be up-to-speed in the many areas of expertise required, such as company law, employment regulations, and responsibilities involving internal financial procedures. And whilst you try to be as careful as possible in the way you manage your business, it can be relatively easy for something to slip by that can result in a costly and distracting claim against you.

Management Liability insurance is one way to make sure you’re protected if this happens. This type of insurance can cover you for costs associated with defending a claim against your company for a breach of a company law or regulation. It can also cover you against claims alleging employment breaches, including wrongful dismissal, discrimination, harassment, deprivation of career opportunity and breach of contract.

Whilst many employers will feel that a claim made against them is baseless, it’s still costly for them to defend it. There’s also the fear that a case will drag out, distracting them and their staff from their main game. To avoid this, many businesses choose to pay ‘go away’ money to avoid the disruption that a claim can make – and these are costs you can certainly live without.

Small business back in the firing line
In recent years, small business has been exempt from unfair dismissal laws. This changed on 1 July 2009 with the introduction of the Federal Government’s Fair Work Bill. Employers with less than 15 full time equivalent (FTE) employees must now comply with the Small Business Fair Dismissal Code if dismissing employees who have been employed by them for one year or more (for businesses with more than 15 FTE employees it applies to employees who have been with them for at least six months).

The Fair Work Australia website notes that employers “must not take any adverse action against an employee (or prospective employee) because of his or her race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin”.

The definition of “adverse actions” includes dismissing or refusing to employ someone, discriminating against them or taking action that unfavourably affects their employment such as demoting them.

These types of claims certainly do make it to court. Not long ago I heard the story of a Real Estate agent who had not hired a certain applicant based on his relative inexperience. That applicant complained to the Human Rights and Equal Opportunity Commission, alleging that the employer had passed him over on the basis of racial discrimination. The Real Estate agent was then required to engage in a costly court case to defend his decision.

Had this Real Estate agent had Management Liability insurance, it would have covered him for the cost of defending such a claim.

The buck stops with management
In another instance, an employer was sued for wrongful termination by an employee (aged 59) who had a history of poor work performance. He alleged age discrimination, citing comments by his supervisor including ‘you’re too old’. The employer ended up settling with the dismissed employee for $350,000 and paying $130,000 in defence costs.

Another case involved an employee who was retrenched as part of a workforce reduction. She commenced proceedings alleging (amongst numerous things) that a supervisor had made sexually explicit comments towards her. Her employer countered that her retrenchment was valid, and that she had made vulgar comments of a sexual nature herself, and management had tolerated sexual jokes around the office assuming no one was offended. The court ordered the company to pay the former employee $100,000 plus her legal fees. The company’s defence fees totalled $31,000.

These stories illustrate how vulnerable employers can be regarding difficulties encountered in employee relations, and the importance of having cover to defend such claims. 

They also highlight the need for you to talk to a broker who is a specialist in this area so that you can be assured that the cover you have protects you against these types of claims.

Are you covered?
Apart from providing a degree of protection against claims associated with employment, Management Liability insurance also covers you for other types of management issues. For example, Management Liability insurance covers many types of actions raised by:
* Shareholders
* Competitors
* Creditors
* Regulators
* Customers
* Liquidators/Administrators.

Claims covered can include those involving violation of securities laws, unfair competition, fraud, breach of fiduciary duty, misappropriation of trade secrets, negligent misrepresentation, shareholder disputes, and trustee liabilities relating to superannuation funds and more.

As you can see, this is quite a list. It demonstrates the breadth of management responsibilities with which companies are required to act with diligence and care. Of course, as your business grows and becomes more complex, it’s harder to stay on top of everything that’s required of you – which can leave your company (and your bottom line) exposed. So apart from making sure you have sound processes in place, it’s critical that you seek expert advice so you can be confident you have the right kind of insurance and an appropriate level of cover.

I believe that Management Liability insurance is definitely worthy of your consideration. Bundled up with your Professional Indemnity cover, it really is an affordable way to make sure you are well protected against the unexpected. After all, the point of insurance is to protect you. And if your present Professional Indemnity cover is inadequate, then it’s not really doing its job.

Disclaimer:  This article is general in nature. We recommend you seek expert advice specific to your circumstances before taking any action.

Matthew J. Denehy owns Eagle Insurance and began working in insurance broking 20 years ago. His qualifications include a diploma from the Australian Insurance Institute, he is a senior associate of the Australia New Zealand Institute of Insurance and Finance, he has a Diploma in Financial Services and is a Qualified Practising Insurance Broker and a Certified Insurance Professional.