Director’s liability insurance

Published by:
Netherlands Chamber of Commerce, KVK
Netherlands Chamber of Commerce, KVK

As a director of a company, you make many decisions. It is easy to make a mistake. Director's liability insurance applies to you and other officials in your company. It insures you all against the risk of personal liability after a mistake. A director’s liability insurance protects your private assets.

What is director’s liability insurance?

Directors’ liability insurance is intended for board members, directors, supervisors, and supervisory directors of organisations, foundations, and associations. This insurance protects all officials against claims for damages following an administrative error. And allows them not to be personally liable.

Examples of administrative errors

You forgot to pay premiums. Or you did not provide enough information to a supervisory body. Or a company has financial damage through your fault. After an error, you can receive a claim for damages from, for example, the government, employees, or customers.

No protection with other liability insurance policies

Business liability insurance or personal liability insurance does not protect directors.

Is it mandatory?

It is not mandatory to take out directors' liability insurance.

What is usually insured?

  • Liability due to poor performance of your duties. Which caused damage. This is also known as improper job performance.
  • Liability for damage because you did something that is illegal . This is called an unlawful act (onrechtmatige daad).
  • Internal liability: there is damage within your organisation, association, or foundation.
  • External liability: people or organisations outside your organisation, association, or foundation suffer damage as a result of your error.
  • Legal assistance, for example from a lawyer.
  • A claim you receive after you take out the insurance. Even if you made the mistake before you took out the insurance (run-in risk).
  • Have you cancelled the directors' liability insurance? And does someone hold you liable for a mistake you made before you cancelled the insurance? Then you can sometimes buy extra cover for this (run-off risk).

What is usually not insured?

  • A penalty or fine.
  • Damage that you caused on purpose.
  • Damage due to theft, fraud, or forgery. For example, forging a signature. Or adjusting an invoice.
  • Damage to persons or someone's property. You will need business liability insurance for this.
  • Damage to the environment.
  • Damage because you abused your position.

Who takes out directors' liability insurance?

You take out the policy in the name of the organisation, foundation or association itself. So not in your own name. The organisation, foundation or association pays the premiums. As a rule, the policy applies to all (managing) directors. If the organisation has an interest or control of more than 50% in another organisation, the policy often applies to those directors as well. Look this up in the policy conditions.

Questions relating to this article?

Please contact the Netherlands Chamber of Commerce, KVK