Directors' liability insurance
As a director of a company, you make many decisions. It is easy to make a mistake. With directors' liability insurance, you are covered against the risk of personal liability following a mistake. In this way, directors’ liability insurance protects your private assets.
What is directors' liability insurance?
Directors’ liability insurance (bestuurdersaansprakelijkheidsverzekering) protects directors against claims for damages following a management error. It does not matter whether you made the error yourself or whether one of your fellow directors did. Because of the insurance, you are not personally liable. This means that you do not have to pay for the damages resulting from the error out of your own pocket.
Directors’ liability insurance is intended for board members, directors, supervising authorities (toezichthouders) and supervisory directors (commissarissen) of organisations, foundations (stichting) and associations (vereniging).
Examples of administrative errors
Examples of administrative errors:
- You forgot to pay premiums.
- You did not provide enough information to a supervisory body.
- 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.
It is not mandatory to take out directors’ liability insurance.
No protection with other liability insurance policies
There are also other types of insurance to protect you against the risk of liability. For example, business liability insurance (bedrijfsaansprakelijkheidsverzekering) or personal liability insurance for private individuals. These types of insurance do not protect managing directors against the risk of personal liability.
What is usually insured?
The directors’ liability insurance usually covers:
Failure to perform duties properly: liability arising from your failure to carry out your duties properly, resulting in damage.
Unlawful act: liability for damage arising from you doing something that is not allowed, accoridng to the law.
Internal liability: damage has occurred within your organisation, vereniging, or foundation.
External liability: people or organisations outside your organisation, vereniging or foundation have suffered damage as a result of your fault.
Legal assistance, such as legal representation from a lawyer.
Read the policy conditions
What is covered and what is not depends on the insurance company and the policy conditions. Always read the policy conditions of your insurance carefully. Pay attention to:
- the excess (eigen risico)
- the sum insured
- who is covered by the insurance
You can ask an independent insurance adviser for advice.
Pre-existing risk (inlooprisico): damage arising before you took out the insurance
The insurance usually only applies if the error and the claim occur during the term of the policy. You can often opt for additional retroactive cover (inloopdekking). This means you are also insured against claims arising from errors you made before taking out the insurance and which are only now becoming clear. Conditions apply to which errors are and are not covered by the retroactive cover.
Run-off risk (uitlooprisico): claims after the insurance has expired
Have you cancelled your directors’ liability insurance? And is someone holding you liable for a mistake you made before you cancelled the insurance? You can sometimes arrange additional cover known as run-off cover (uitloopdekking).
Arrange run-off cover in the event of bankruptcy
Is the organisation, foundation, or vereniging going bankrupt? If so, the directors’ liability insurance will also end. But some errors are only discovered later and you may still face a claim. Do you want to remain protected against claims following the organisation’s bankruptcy? If so, apply for run-off cover (uitloopdekking) from the insurer yourself as soon as possible.
What is usually not insured?
What is not covered varies per insurer. This is set out in the policy terms and conditions. Financial consequences that are often excluded include:
- 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 the environment.
- damage because you abused your position, gaining a financial advantage
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 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.
Collective directors’ and officers’ liability insurance
Sometimes umbrella organisations, such as a sports federation, take out directors’ liability insurance on behalf of all their member clubs.