Professional Indemnity vs Management Liability Insurance: Key Differences

Professional indemnity vs management liability comes down to one question: who is making the complaint, and what is it about ? Professional indemnity insurance is designed to respond to claims about the services or advice your business delivers to clients. Management liability insurance is designed to respond to claims connected with how the business is run. They may respond to different exposures, and neither is a substitute for the other.

If you searched for professional liability insurance, that term is generally used in Australia for the same kind of cover as professional indemnity. Management liability is a different product.

Cover depends on the policy and insurer you choose. Check the policy wording and its terms and conditions for what is and isn't included.

Key takeaways

• Professional indemnity insurance is designed to cover claims that your advice, service or work caused a client financial loss, subject to the policy terms.
• Management liability is a packaged policy. What it includes varies between insurers, and each section operates on its own terms and its own specified limit (the maximum that section pays).
• Neither product is designed to answer the other's claims, so a business with both exposures may consider both policies.
• Professional indemnity is generally a claims made policy. See the full definition below.
• Insurance does not replace sound contracts, employment practices or governance.

Professional indemnity vs management liability at a glance

What is the difference between management liability and professional liability?

The difference is who is making the complaint and what is it about?  Professional liability and professional indemnity describe the same kind of cover.

Professional indemnity may respond where a client says the work you were paid to provide led to financial loss, and the client alleges services were provided negligently. Management liability may respond to claims connected with running the business. That might be an employee alleging unfair treatment, a regulator investigating conduct or a director facing a personal allegation.

Professional indemnity is also called professional liability, and errors and omissions. Some insurers also market a packaged product as business and management indemnity insurance. That is a management liability package rather than professional cover.

What does professional indemnity insurance cover?

Professional indemnity is designed to cover claims that your services, advice or work caused a client financial loss. It may include legal defence costs, compensation and any settlement you are legally liable to pay, subject to the policy terms.

Professional indemnity and management liability insurance are generally a claims made policy. That means a claim can occur in the period of insurance when it is brought against you. That could be a letter of demand, a writ or a civil suit. It is not typically an ‘occurrence based’ policy which is triggered by the date the services were originally provided. So it is important to keep your cover active and continuously in place (also called continuity of cover). This then means the retroactive date on your schedule should cover you for claims brought from services for as long as you have been providing them. You can ask your broker or the upcover team about how you may also get an unlimited retroactive date.

Within professional indemnity policies  covered allegations include negligence, errors and omissions, breach of professional duty, misrepresentation and breach of confidentiality. Policies can also extend to cover possible defamation claims, and breaches of privacy.

How can you identify which policy might respond to a typical situation? A client paid you for work, something in that work is alleged to have gone wrong, and they say it cost them money. Where the complaint is about the quality of what you delivered, rather than how you run the business, this may be the policy that could potentially cover responding to a claim subject to its policy wording and terms and conditions. .

For the full picture, see professional indemnity insurance.

What can management liability insurance include?

Management liability is a packaged policy of a number of insurance products, not one standard product and it is typically offered in the Australian market as up to seven insurance products. What is included, and what each section is capped at, varies between insurers. Some packages offer a small number of selectable sections, while others bundle additional risks such as cyber insurance.

Sections commonly available include:

• Directors and officers liability: may respond to claims against directors, officers and managers personally for alleged wrongful acts in their management capacity. It may also reimburse the company where the company lawfully indemnifies them. For director obligations, see ASIC's guidance on company officeholder duties.
• Company reimbursement: this is a cover for a company that is indemnifying its directors and officers from responding to a claim that could be covered under the management liability insurance policy.
• Employment practices liability: may respond to eligible employment-related claims that deal with workplace rights, including unfair dismissal, discrimination and harassment allegations. These claims may more commonly be brought to Fair Work or the Office of the Anti-Discrimination Commissioner. Importantly, does not respond to claims surrounding redundancies or benefits or entitlements claims.
• Statutory liability: may cover responding to an allegation or breach of statute or legislation, where a government body or association - typically defined in the policy as an ‘official body’ investigates breaches of legislation which can include the Environmental Protection Authority, SafeWork or even a Coroner’s Inquiry. This cover may not be available up to the full limit of the policy but a smaller limit available, and can extend to certain defence, investigation costs. Penalties may or may not be covered depending on the type of penalty and the statute and breach that has occurred. . This differs by state and by penalty type.
• Crime or fidelity: may respond to claims relating to white collar crime or theft.  This could be direct financial loss from employee theft, fraud or forgery, depending on the policy and its terms and conditions it may also extend to third parties not only white collar crime occurring internally. Its trigger is typically the date of discovery and notification rules are set out in the policy wording - early and prompt discovery is typically.
• Tax audit: may cover professional fees incurred in responding to an eligible audit or review by an official body such as the Australian Taxation Office but may not extend to audits by Medicare for example. It is an expense cover rather than a liability section. Tax, interest, penalties and routine accounting costs are generally not covered but costs of an accountant and lawyer assisting in responding to the audit are covered. The limit is typically smaller also, ranging from $50k-$500k.

Because sections vary so much, two quotes at the same price may carry very different limits. Each section may have its own sub-limit (a smaller cap inside the overall policy limit) and should be considered also for the appropriateness of the size, and stage of your business. For a fuller walk-through, see what is management liability insurance and management liability versus directors and officers insurance.

What is usually not covered by either policy?

All insurance products have common exclusions but these will always vary across each policy. On professional indemnity, common exclusions include, but are not limited to:

• Claims and circumstances you knew about before the policy started.
• Work done before the retroactive date shown on your schedule.
• Dishonest, fraudulent or criminal acts by you. Dishonesty by an employee may be covered under a crime or fidelity section, where the policy includes one.
• Injury to a person or damage to their property, which generally sits with public liability.
• Liability you take on under a contract beyond what you would owe at law.

On management liability, common exclusions include, but are not limited to:

• Claims about professional services, which generally sit with professional indemnity.
• Penalties that cannot be insured at law, which vary by state and by penalty type.
• Deliberate wrongdoing by the person claiming cover.
• Insured vs Insured claims (i.e. claims brought between directors)
• Major shareholder claims (this can vary between 15-25% ownership share)
• Contractual liability claims are not typically covered by these policies.
• Claims relating to employment benefits or entitlements including redundancy.
• Matters known before the policy or the relevant section started.
• Injury to a person or damage to their property, which generally sits with public liability.

Important: This list is not exhaustive. Exclusions vary between insurers. Always refer to the policy wording and its terms and conditions for the exclusions that apply to you and if you have questions you should speak to your insurance broker or the upcover team

Management liability vs professional indemnity: which exposures does your business have?

Rather than deciding by profession or headcount, many businesses look at their actual exposures. Each row points to the cover that usually answers it.

Some professions also face outside requirements. Registered tax and BAS agents must hold professional indemnity insurance that meets Tax Practitioners Board requirements. AHPRA-registered health practitioners must have professional indemnity arrangements that meet their Board's registration standard. That standard may be met by an employer's arrangement rather than an individual policy but it is important to check with your employer if you are not sure.

Australian financial services licensees serving clients must have compensation arrangements in place under the Corporations Act. ASIC Regulatory Guide 126 sets out how professional indemnity insurance is used to meet that obligation. Requirements for engineers, architects and real estate agents are set by state registration bodies and vary by state. This list is not exhaustive.

Applied to a three-person design studio: the studio operates as a company, takes on client projects, employs two staff and has one director. Clients rely on its design work, so professional indemnity may be relevant. It has a director and it employs people, so the directors and officers and employment practices sections may also be relevant.

Can multiple insurance policies or cover sections in Management Liability or Professional indemnity apply to the same event?

Yes, typically in a claim scenario the insurer’s claims team will write a letter to you and your insurance broker to identify the relevant sections of the policies that may be covered, as well as which policy will be triggered in this particular claims situation. It would be important to the client to consider which is most beneficial to them - i.e. a smaller excess or a higher limit of liability. Having your insurance with multiple insurers rather than one insurer can create disputes between insurers in relation to coverage, so in some circumstances especially if it is available, it may be considered useful having as many policies as possible covered by one insurer. This can be particularly true with professional indemnity and public liability and cyber insurance claims for service based businesses.

Whether either policy responds depends on several things. Those include the capacity in which the person acted, who is claiming, what is alleged and the relevant insuring clauses (the sections of the wording that say what is covered). Two related events or claims may still be treated as separate claims, or may be deemed by the insurer to be considered one claim where one excess and one limit of liability would apply.

Where both policies are held, an upcover team member or an insurance broker can help understand your existing insurance and any gaps in cover that might exist.

Professional indemnity and management liability claim examples

The scenarios below are illustrative, written to show how claims of this kind arise.

A client claim: A management consultant delivers a go to market  strategy. Twelve months later the client alleges the advice was negligent and starts proceedings. How the policy may respond: Professional indemnity is designed to respond to claims that advice caused a client financial loss. It may include defence costs, compensation and any settlement, subject to the policy terms.

An employment claim: An accounting practice dismisses a junior accountant for poor performance. The employee lodges an unfair dismissal claim with the Fair Work Commission, and the practice engages lawyers to respond. How the policy may respond: An employment practices liability section within management liability insurance may respond to eligible employment-related claims of this kind, subject to the policy terms.

Two claims at once: A marketing agency faces a former client alleging a campaign caused reputational loss and damage resulting in lost revenue, they are also refusing to pay the professional fees. In the same period, a former employee lodges a discrimination claim. How the policy may respond: Professional indemnity may be relevant to the first but not respond to the contractual liability of the lost client fees as this should be covered by the business, and employment practices liability insurance within management liability insurance products may respond to the second. They may be considered by each insurer as  separate unrelated claims under separate sections, each with its own specified limit and excess applicable.

Important: these claims are examples only. Cover is subject to policy terms, conditions and exclusions. Policy wordings vary between insurers. Always refer  to the policy wording and its terms and conditions for details. If you have questions about a particular possible claim or would like assistance about whether a certain claim might be covered it is always best to speak to an upcover team member or your insurance broker.

How much do professional indemnity and management liability cost?

This always depends on the industry classification and revenue of your business, and the stage of your business or your licensing professional requirements or contractual requirements may also influence the limit of insurance you also need to consider. All these factors influence the cost. Your existing controls and risk framework, responses to your insurance partners risk questionnaires/proposals and recent claims history would also impact the total cost of your insurance.

Management liability figures are for the overall policy limit; section sub-limits vary. Figures based on annually paid policies arranged through upcover.

For industry breakdowns, see professional indemnity insurance cost and management liability insurance cost.

What to consider when reviewing your insurance policy

Three questions are worth answering first.

When was the last time I reviewed my insurance? Has my business or activities changed including revenue, employees, activities or customers? Have my requirements for licensing or contractual requirements increased or been reduced?

Does a registration, licence or client contract set a minimum? That usually sets the minimum requirement for your limit. See what level of professional indemnity cover you need.

On management liability, what is each section limited to? Section sub-limits matter more than the overall figure, because packages vary so widely.

If you hold both, how do the wordings interact? Check whether either contains an exclusion affecting the other. For help comparing wordings, see how to choose professional indemnity insurance.

How upcover can help

upcover is a digital-first insurance broker that arranges professional indemnity and management liability cover for Australian businesses. It also arranges other commercial policies. upcover works with 80+ insurance partners and can arrange quotes from a range of insurers.

Before starting a quote, it helps to have your ABN and business name, the services you provide, annual turnover and employee numbers. You will also be asked for any limits your contracts or registration require, and details of your current cover.

• 70,000+ businesses insured through upcover across Australia
• 4.9/5 customer rating
• 80+ insurance partners
• Certificate of Currency (proof your policy is in force) available on policy confirmation, where available for the relevant policy

Not sure which exposures apply to your business? An upcover representative or a broker can talk through your situation, or you can request a quote.

Frequently asked questions

Is management liability the same as professional indemnity insurance?

These are two different products. Professional indemnity is designed to respond when a client alleges your professional services or advice caused them financial loss. Management liability is designed to respond to claims about how the business is run, including employment disputes and regulatory matters.

Does a business need both professional indemnity and management liability?

Whether both are relevant depends on the business's exposures rather than its size. A business whose clients rely on its professional advice may consider professional indemnity. A business with directors, employees or regulatory obligations may consider management liability sections, and where both apply, both may be relevant. An upcover representative or a broker can talk through which exposures your business has.

Is management liability insurance compulsory in Australia?

There is no general legal requirement to hold management liability insurance. Professional indemnity is different, because several regulated professions must hold it as a condition of registration or licensing, as set out above.

Is professional liability the same as professional indemnity?

The two terms are generally used in Australia for the same kind of professional-risk cover. Professional liability and errors and omissions are terms used more often overseas. Wordings still vary between insurers and products, so compare the policy rather than the label.

Is public liability or employers liability the same as professional indemnity?

Public liability is designed to respond to injury to a person or damage to their property in connection with your business activities. Employers liability concerns injury or illness suffered by employees, which in Australia is largely handled through state and territory workers compensation schemes. Professional indemnity is different again. It is designed to respond to financial loss a client says arose from your advice or services. Many service businesses hold professional indemnity and public liability together, because contracts commonly ask for both.

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_{General information only, not personal advice. It does not take into account your objectives, financial situation or needs. Management liability packages, section limits, triggers and exclusions vary between insurers, and the insurability of statutory penalties differs by jurisdiction and penalty type. Cover is subject to the relevant policy wording and its terms and conditions. Scenarios are illustrative only and do not represent confirmed cover outcomes. Cost figures come from two separate groups of annually paid policies arranged through upcover between [month year] and [month year], over 150 professional indemnity policies and over 110 management liability policies, and are not a like-for-like product comparison. Data as at [date]. Typical cost is the median, and what most businesses pay is the middle half of policies, from the 25th to the 75th percentile. Figures are a guide, not a quote. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}