Advancement of Costs and Emergency Defence Costs | Management Liability Extensions

Management Liability Insurance is a crucial component of a business’s risk management strategy, providing coverage for the legal and financial repercussions of managerial decisions. A critical feature of a Berkley Insurance Australia (BIA) Management Liability Insurance policy is the Advancement of Costs and Emergency Defence Costs extension. This extension offers unique benefits that can be pivotal in protecting the financial integrity of an organisation and its leadership during litigation.

Advancement of Costs

Australian companies are prohibited by law from indemnifying a director and officers in certain scenarios – for example – a liability the director or officer owes to the company or related body corporate. Directors and officers may look to the company to indemnify them against liabilities they incur in carrying out their duties. There will routinely be a Deed of Indemnity between the director and the company, which provides for the company to indemnify the directors for liabilities incurred as a director, to the fullest extent permissible by law.  

The scope of the indemnity will depend on the terms agreed between the company and the officer, but is also limited by law. In addition, an indemnity is only as good as the entity that stands behind it.  That is, an indemnity from an insolvent entity will not be of mush assistance. 

In the event that a claim is made against a director in that capacity and the company does not have the financial means to indemnify, the director may have to personally fund their defence of the claim which can be a costly exercise.  This is where the existence and operation of a Management Liability Insurance policy can provide protection and peace of mind for company directors.

As a result of all of this uncertainty Advancement of Costs provided by Berkley Insurance Australia’s Management Liability Insurance policy is essential.

This extension ensures that, subject to the policy’s indemnity limit and any applicable deductible, BIA will advance the legal costs associated with investigating and defending a claim prior to its final settlement. This means that companies and their directors do not have to wait until the end of potentially prolonged legal proceedings to receive financial support for their defence.

Key Benefits of Advancement of Costs

• Immediate Financial Support

Legal proceedings can be financially draining, with legal costs mounting quickly. The advancement of legal costs provides immediate financial relief, allowing the insured to focus on a responding to the claim without worrying about cash flow issues.

• Enhanced Defence

With upfront access to funds, the insured can confidently engage legal representation from the onset, which can be crucial in navigating complex legal landscapes and potentially mitigating the severity of the claim.

• Business Continuity

By alleviating the immediate financial burden of legal costs, businesses can maintain operational stability and focus on their core activities without diversion of funds to cover legal expenses.

Emergency Defence Costs

The Emergency Defence Costs extension under the BIA Management Liability Insurance policy is designed to address situations where immediate legal action is required but obtaining prior consent from the BIA is not possible. In such emergencies, the requirement to obtain consent before incurring legal costs is temporarily waived, provided that BIA’s consent is obtained within thirty days of the initial legal costs being incurred.

Key Benefits of Emergency Defence Costs

• Rapid Response

Claims can emerge quickly and require swift action. This extension allows the insured to engage legal representation to respond immediately to demands where prior approval from BIA is not possible, which can be critical in managing crises effectively.

• Flexibility
  Temporarily waiving prior approval ensures that the insured is not penalised for taking necessary immediate actions to protect their interests and they have flexibility to respond to a claim depending on the circumstances.
• Peace of Mind

Knowing that the policy provides a safety net for emergency legal expenses offers peace of mind to the insured, enabling them to act decisively in urgent situations.

Practical Implications

The inclusion of this extension in the BIA Management Liability Insurance policy underscores our commitment to supporting our insureds through the uncertainties of legal challenges presented by claims. However, it is important for insureds to be aware that advance payment of costs must be repaid if it is later determined that they are not entitled to such payments under the policy.

In conclusion, understanding and leveraging these unique benefits can be a game-changer for businesses and their directors and officers facing the uncertainties of legal claims, ensuring they are well-equipped to defend their interests and maintain operational continuity.

For more information don’t hesitate to get in touch with your local underwriter.

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Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a financial product, you should review the relevant Policy Wording.