Personal liability of a BV director for insurance problems

Earlier this year, the Den Bosch Court of Appeal ruled on the situation in which a managing director was held personally liable by a creditor of the (now bankrupt) limited liability company (BV). The reason? The director had allegedly not taken out a proper professional liability insurance for the BV and the insurance coverage had been suspended because the premiums had not been paid on time.

Facts

First of all, the general rule in Dutch corporate law is that only in exceptional cases, directors of BVs and NVs are personally liable towards third parties for debts of the company. This time we will discuss a case in which a creditor of the BV argued that the managing director was indeed personally liable.

The case concerned a BV that had advised and acted as an intermediary already in 2007, in order to obtain financing for the purchase of a membership right in a housing association. The BV in question did not pay the insurance premiums on time and, as a result, the insurer suspended the coverage of the professional liability insurance. This professional liability insurance was in fact mandatory in this case.

After the insurance coverage had been suspended, the BV was sued by a creditor. The claimant stated that the BV had not given appropriate financial advice and that it had not fulfilled its duty of care. After the BV had reported this matter to its own insurer, the BV found out that the insurance coverage had been suspended. So, that meant an extra problem. The insurance was also cancelled by the insurer on 1 January 2014, due to the claims history. The BV itself was declared bankrupt in 2019.

Judgement of the court

The creditor of the bankrupt BV did not leave it at that and went to court. With regard to the claims against the director personally, the court ruled that the director was not personally liable. After all, the director proved that a professional liability insurance had been taken out. Late payment of insurance premiums or late reporting of damage under the insurance is, according to the court, not sufficient to successfully hold a director personally liable.
The creditor appealed against this judgment.

Judgment of the court of appeal

Was the BV sufficiently insured?

Firstly, the managing director is reproached for not having taken out professional liability insurance for the BV in a proper manner, in accordance with the Financial Supervision Act. The creditor argued that the insurance was defective because it could be cancelled by the insurer, and in this case it was also cancelled. The director was aware of this and knew or should have known that the BV would not be able to fulfil its obligations and would not have recourse for the damages. The creditor is therefore of the opinion that the managing director is 'sufficiently seriously at fault' (the standard from case law) and is therefore personally liable.

The Court of Appeal disagreed: the fact that the BV had concluded a professional liability insurance that was in force at the time of the advice, is sufficient to prove that the BV was sufficiently insured for professional liability. The Court of Appeal ruled that the creditor had not sufficiently substantiated that the director could be blamed for a serious personal fault.

Claims behaviour and unpaid premiums

Secondly, the creditor claims that the insurance does not provide cover as a result of the claims behaviour of the director and/or the BV's failure to pay the insurance premium. Also, the managing director is said to have done insufficiently to obtain cover, in the period after suspension of the insurance until the bankruptcy of the BV.

In this respect, the creditor again argues that all of this constitutes a personal serious fault, in accordance with the criteria laid down in Dutch case law. This too was of no avail: the Court of Appeal ruled that the creditor had failed to substantiate his allegations sufficiently. In this respect the Court of Appeal states that it is the duty of a director to organise his business in such a way that insurance premiums are paid on time and that it is prevented that the insurance cover is suspended.

However, in this case the problems with the payment of premiums were caused by a change of address of the BV, which the director did pass on to the insurance intermediary. And even if the change of address had not been passed on in time, that in itself is not sufficient for a 'personal serious fault' of a director. Moreover, the BV sent annual change of address forms to the insurer and the BV's payments were in order.

According to the Court of Appeal, it is not correct that the director did not do enough to realise insurance cover after all. The director has asked his intermediary to provide coverage for the creditor's claim. The creditor still argues that it is seriously culpable that the director did not start proceedings against the insurer, but the creditor has not substantiated that such proceedings would have a chance of success.

Furthermore, the insurance claim in this matter is not excluded because of the claiming behaviour of the director of the insured BV, but because of the failure to pay the insurance premiums on time.

You can read the full judgment here.

Final remarks

In this case, no personal liability of the director was assumed. However, a lot depends on the facts and the way they are substantiated. Are you faced with directors' liability yourself, as a director or as a creditor? If so, then let the corporate lawyers of SPEE advocaten & mediation assist you in good time!

SPEE advocaten & mediation Maastricht