Liability and liability law are news events every day. Traffic incidents, assaults, gas explosions, company fires, or earthquakes as a result of gas extraction. Liability law is the law that regulates who is liable to compensate damage suffered and/or caused by third parties. Sooner or later anyone could have to deal with liability law. For instance, you could be involved in a (traffic) incident or an assault, or you could suffer or cause damage as an employee or employer.
If a company is liable for such damage, then the question is if a business liability insurance covers the damage and compensates it. As a director or officer of a company, you can also be made personally liable, even if you think that your choice of a specific legal form for your company means you run little or no risk of liability. Is the liability of your company covered by a business liability insurance? Or is your personal liability covered by a directors' and officers' liability insurance? Independent practitioners or service provers, operating within large organisations or otherwise regularly come into contact with liability law. Lawyers, notaries, physicians, medical specialists, accountants, tax consultants, real estate agents, insurance intermediaries and financial service providers are made personally liable to an increasing extent.
Have you taken out a good professional liability insurance for this damage? Over the past ten years, real estate agents and insurance intermediaries have been made liable to an increasing extent.
In all cases there may be high amounts of damage that sometimes can be claimed only from the company, but sometimes also from the directors, management and/or officers personally. And if your company introduces products on the market, then your company may be liable for damage caused by a fault in the product: this is the so-called product liability. There are product liability insurance schemes for this specific type of liability.
For companies that use chemical substances that are known to be especially hazardous to people or property, Dutch liability law has a special liability scheme. For damage as a result of hazardous substances and neglected environmental care, the user is liable..
Do you want to recover suffered damage from the party that caused it? Have you caused damage to someone and/or are have you been made liable for that damage by that party? In all these cases, we advise you to contact one of the Liability and Insurance lawyers of JPR Advocaten.
Liability law in general
Liability law is most definitely the working field of lawyers. Anyone may come into contact with liability law sooner or later. It concerns a complex system of rules regarding obligations (or commitment) for paying compensation. These obligations may be the result of the Law (so-called statutory liability) or from an agreement (so-called contractual liability).
If the Law sets the obligation to compensate damage caused to others by specific human actions, then this is called statutory liability. The primary source for statutory liability is the wrongful act.
Liability resulting from an agreement (contractual liability) is about the obligation to compensate damage that forms for a party if they do not comply with an obligation under the agreement, or do not do so in time, or do not do so adequately, thus causing damage to their contract partner. In liability law, such noncompliance with a contractual obligation is called an attributable breach (formerly: breach of contract). This also applies to private individuals.
If a wrongful has been committed against your company, then your company is entitled to compensation of damages. If your company has committed a wrongful act and/or is made liable for a wrongful act, then your company or your liability insurer will need to compensate the damage to the third party. The liability insurance for companies will have to cover statutory liability and contractual liability. Product liability will usually be insured separately.
Sometimes, so-called liability for the provision of services can also be insured. This regards your company's statutory and/or contractual liability for damage caused to persons and assets. This may be the case if, for example, (an employee of) your company has not adequately executed their activities your company committed to under a contractor agreement or contract for services. Moreover, your company can be made liable for damage caused to employees due to industrial accidents and road accidents with motor vehicles. As the employer, your company is liable for both the material damage and personal injury (pure financial loss) that may be caused to drivers and passengers of motor vehicles. However, your company's liability goes beyond the business use of a motor vehicle by your employees. Your company can also be liable if your employees, in the context of the execution of the tasked activities, are in an accident while cycling or walking, or if they cause an accident. And if you, as an employer, have organised sports events, company outings, etc., then you can also be liable for any injuries of your employees. In all cases, it does not necessarily have to concern employees under contract, but also covers temporary workers, self-employed workers without employees who cause or were damaged during the activities contracted by a company.
Which damage must be compensated by your company?
The victim of a wrongful act has a right to compensation of both property damage and personal injury (damages resulting from injury and damages resulting from death).
Property damage includes, for example, broken items (material damage). But if someone got sick, injured, or if someone died, then this is called personal injury. Personal injury can also cover material damage (financial loss due to injury) and immaterial damage (non-financial loss or moral damage; compensation for pain and suffering) caused by pain, sadness and loss of enjoyment of life.
Damages resulting from death include financial loss due to a loss of livelihood as a result of the passing of the victim as breadwinner, and of funeral costs.
According to Dutch liability law, injured parties (both natural persons and legal entities/companies) are, in case of a wrongful act, entitled to or obliged to pay compensation for:
- costs to limit damage;
- expert costs and extrajudicial collection fees.
To claim damages, the injured party (the victim) will need to demonstrate that there is a causal relationship between the damage and the wrongful act. This must concern such a causal relationship that the damage must be attributed to the (employee of the) company also taking into account the nature of the liability and the damage (the so-called doctrine of attributability of the Supreme Court, Article 6:98 of the Dutch Civil Code).
If an employee of your company causes damage to third parties in the execution of the employment, then as stated above, your company will be liable on the condition that there is a functional relationship between the error and the assigned task (Article 6:170 of the Dutch Civil Code). In such a situation, Dutch liability law applies a strict liability for the employer. Even when a non-employee, and thus not a subordinate, but a temporary worker or self-employed worker, for example, caused damage to a third party in the execution of the ordered activities, or has been caused damage, then your company may be liable for this damage even if your company was not directly at fault. For this, too, Dutch liability law has regulations included in Article 6:171 of the Dutch Civil Code. The condition for the client's liability is that the work assigned to the temporary worker/self-employed worker by your company is performed in the context of execution on behalf of your company even if there is no subordination.
If your employee or hired worker is in an accident or causes an accident at your company, then liability law includes the possibility that your company may be liable for that damage if, for instance, you have taken insufficient care with respect to the execution of the assigned works. Based on Supreme Court rulings, it can be stated that even though it concerns fault-based liability, the highest court tightened the standards in a number of rulings so that the outcomes for application to practical cases are not far removed from the outcomes for strict liability. For instance, burden of proof lies with your company, liability law for your company has a very extensive standard of due care, and you may only argue a defence with respect to the employee or self-employed worker regarding deliberate intent or deliberate recklessness. If a temporary worker was in such an industrial accident, then both the employment agency, your company, and hirer may be liable for this temporary worker's damage.
As discussed above, liability law also covers contractual liability: the attributable breach (breach of contract). If your company, or someone on your company's behalf commits an attributable breach that causes damage to your company's other party, then you are obliged to compensate that damage if and insofar the damage can be attributed to your company. The reverse is true, as well. If your contract party is in breach of contract, then your company can attempt to claim damages. Usually, a professional liability insurance or a business liability insurance may apply. In such a case, the discussion regarding liability and the nature and scope of the damage will be held with the professional or business liability insurer. However, as with the wrongful act, attribution takes place based on fault-based liability and/or strict liability. The different loss items and the scope of the damage more or less correspond to the loss items in statutory liability law. The scope of the compensation naturally is also based on the nature and content of the contract itself. For instance, do general terms and conditions apply? If so, can you appeal to their nullity?
The liability risk of companies primarily will be covered by a business liability insurance. But does this insurance also cover the damage to your employee in case of a work accident or on their way to a customer? And does your insurer also cover the damage suffered by the employee as the result of an accident during their commute?