Directors’ liability insurance: protect your personal assets against unexpected risks

In this context, directors’ liability insurance is no longer a superfluous luxury, but an essential tool for protecting both their personal and professional interests.

The increasing risks for directors

The context in which directors operate has changed significantly in recent years. Legislators are imposing higher standards of good governance. Shareholders, employees, and customers also expect more transparency, integrity, and accountability.

An important development in this regard is the emergence of ESG criteria (environmental, social, governance). Directors are expected to actively contribute to sustainability and social responsibility. A lack of commitment or shortcomings in this area can also lead to liability risks.

Additionally, new rules on non-contractual liability also increase the liability risk for directors.

It is therefore crucial that directors exercise their mandate carefully, transparently, and legally correctly. This requires not only knowledge and vigilance but also support from specialized partners.

What does directors’ liability entail?

Directors bear ultimate responsibility for the daily management and strategic direction of a company. In the context of their role, they must not only strictly comply with applicable laws and regulations but also act in accordance with internal agreements, statutory obligations, and always as a “good director” with the company’s interests in mind.

When directors fall short in these obligations, they can be held personally liable for damages resulting from errors, omissions, or careless actions. Liability can arise in various situations, such as:

• non-compliance with mandatory procedures;
• late filing of annual accounts;
• insufficient management of conflicts of interest or failure to take out necessary insurance;
• failure to properly follow internal alarm procedures or ignoring signs of financial problems.

In some cases, this liability can even go beyond the contractual framework. In cases of serious malpractice or in situations of so-called wrongful trading, where directors continue to operate while it is clear that bankruptcy is inevitable, directors can be held personally liable for the damages incurred.

What does directors’ liability insurance entail?

This insurance protects directors against the personal financial consequences of alleged errors, omissions, or careless actions during the exercise of their duties. The coverage is broad and often includes:

• claims by shareholders, employees, customers, or third parties;
• compensation for legal defense costs (legal assistance) and damages;
• support in disputes where the director’s policy is called into question;
• additional guarantees for new risks such as cyber incidents, data breaches, AI, and ESG-related claims.

With this broad coverage, this insurance not only provides financial protection but also peace of mind. Directors can perform their roles with greater confidence, knowing they are covered against potential legal consequences.

Free choice of lawyer

An important added value of directors’ liability insurance is the free choice of lawyer within the framework of the legal assistance included in such insurance. You can find more information in our previous article on legal assistance insurance.
PKF BOFIDI Legal assists directors in identifying, managing, and mitigating legal risks.

We assist you with:

• personalized legal advice;
• risk analysis and preventive legal assistance;
• coverage analysis;
• legal representation and assistance in liability claims before courts or an arbitration tribunal.

Our PKF BOFIDI Legal experts are happy to assist you

Do you, as a director, want to strengthen your position and protect your personal interests against the risks associated with your role? Do not hesitate to contact us. We offer you professional advice tailored to your specific situation and sector.

This article was written by Pieter-Jan Van Mierlo, specialized in insurance and liability law, and Katrien Ver Elst, specialized in corporate and business law.