Doing business in financially difficult times means making choices. An entrepreneur regularly wonders which costs are truly necessary and where savings can be made. In that process, insurance sometimes still slides into the background, or a calculated risk is taken on it. But what if that is precisely what opens the door to personal liability? A recent ruling by the District Court of Oost-Brabant illustrates this in a striking way.
Fire during works. Director on the hook
The ruling concerned a roofing company that carried out work on a home. During this work a fire broke out, causing considerable damage to the home. Fortunately, the residents had building insurance that paid out €350,000 in damages. When the insurer subsequently tried to recover this amount from the roofing company, it turned out that the company did not have insurance that provided adequate cover for damage caused by fire-hazardous work.
The insurer therefore turned to the director personally, which ultimately led to a court case. The court ruled that it was the director’s responsibility to arrange for appropriate insurance. Although the director defended himself by stating that he trusted that his policy provided cover, it emerged from the policy terms that fire-hazardous work was explicitly excluded from cover. The court therefore ruled that the director was personally liable for the damage. The director knew – or should in any event have known – that his business had no insurance, while fire risk was a significant and foreseeable risk when carrying out roofing work.
Director liability: a high threshold
Normally, directors can only be held personally liable if they are guilty of personally seriously culpable conduct. That is a fairly high threshold, requiring demonstrable evidence of deliberate or highly careless conduct. In this case, that threshold was nevertheless met. The roofing company structurally carried out fire-hazardous, risky work without adequate insurance. This meant it was not only foreseeable that damage could occur, but also that the business would not be able to bear that damage itself. The court therefore considered these circumstances sufficient to hold the director personally responsible for the damage.
What does this mean for you as an entrepreneur?
This case makes clear how vulnerable a business can be when insurance does not properly match practice. It raises questions relevant to every entrepreneur. Has sufficient thought been given to the risks of day-to-day operations and how they are covered? This case shows that damage does not always stay within the walls of the business, but can also have personal consequences for directors. Precisely when your business carries out work with elevated risk, having adequate cover is crucial. The right insurance protects not only your business, but also your personal position. Insurance terms are sometimes difficult to read and understand. What do all those small print clauses, exclusions and exceptions actually mean? Although insurance advisers advise on the policy, that is not always sufficient. Sometimes the coverage terms are difficult to read.
The corporate lawyers at The Legal Company take a legal look at your insurance together with you, so that risks in contracts are properly covered and you are not faced with surprises. In addition, we advise directors and entrepreneurs on their personal liability, so that you know where your responsibilities lie and how best to manage them. You can contact us via info@thelegalcompany.nl or by phone on 020-3450152.
