Directors' liability in construction: director privately liable due to lack of insurance coverage in industrial accident

The main rule in our legal system is that a director of a legal entity is not liable in private for the debts of that legal entity. This is called "the shield of legal personality."

However, there are conceivable circumstances in which this shield is breached. As a result, a director is liable in private. I wrote an article about this earlier.

Situations also arise in the construction industry where a director may be liable in private. This presents opportunities for creditors to collect claims (see article and article), but also poses risks for directors.

Recently, the Court of Appeal of 's-Hertogenbosch ruled on such a risk. It ruled that a director is privately liable if his construction company is not adequately insured.

What exactly was the case about?

Facts ruling court of appeal 's-Hertogenbosch

A construction company engages in the supply and installation of roof and wall sheeting systems.

At some point, the company is performing renovation work on a sloping roof of a tool shed.

An experienced project manager/executive in charge of overseeing safety falls through a roof and dies because no fall protection was in place.

The widow of the deceased project manager holds the company liable, but it fails.

The company's liability insurer does not pay because due to non-payment (on time) of the insurance premium, insurance coverage has been suspended.

The widow then also holds the director of the construction company privately liable. The court grants the claim and comes to the following conclusion.

Substantive judgment court of appeal 's-Hertogenbosch

According to established Supreme Court case law, a director is liable in private only if he can be held personally and seriously culpable.

According to the court, this is true in this case because a company that allows its employees to perform high-risk activities involving significant risks can be expected to take out proper liability insurance.

Failure to obtain such insurance or failure to pay premiums (on time), thereby suspending coverage, thus, in the court's opinion, constitutes personal, serious misconduct that makes the construction company's director privately liable for the damages caused by the industrial accident.

In doing so, the court - it seems - goes further than the Supreme Court now that the Supreme Court has previously ruled that the insurance obligation that follows from good employment practices (Section 7:611 of the Civil Code) must be limited to risks of participation in legal traffic.

Whatever of this, good governance, in my view, includes adequate insurance.

This is important not only for the company itself and those harmed (such as the widow or staff), but for the director himself to avoid the risk of private liability.

Conclusion: ensure adequate insurance and timely payment of premiums

It follows from the decision of the Court of Appeal of 's-Hertogenbosch that it is very important for a company that engages in high-risk activities - as is often the case in construction - to have adequate insurance.

If the company fails to do so or fails to pay the premiums (on time) resulting in a lack of coverage, the company's director runs a significant risk of being held privately liable.

In short, directors' liability not only provides opportunities to collect claims against a contracting party that has gone bankrupt, but also involves risks in which it is important for the director to recognize and tackle them in a timely manner.