Directors’ and officers’ insurance for charitable foundations


Charitable needn’t mean unprofessional

The most successful charities are those which operate like a business. That means making sure the budget is spent efficiently and professionally.

Like any business, a successful charity should have:

  • Clear goals and a plan of how to achieve them.
  • A sleek website and clever use of digital media to raise awareness and donations.
  • The right insurance.

It’s an unfortunate truth that the good work that a charity carries out won’t protect them from lawsuits.

There are things called immunity statutes in place to try and limit the damage that lawsuits can inflict on charities and other non-profit organizations. These work by raising the threshold that a plaintiff must meet to prove their case.

For example, there would have to be evidence of gross negligence for an organization to be found negligent. However, these are not enough to entirely defend charitable foundations against lawsuits.

Unless a charity is properly insured, a single liability claim could eat up their precious budget, putting them out of operation.

Basic coverage

All charitable foundations should check that they’re covered if a visitor were to hurt themselves in their headquarters (general liability insurance will cover that), then make sure their property is insured and that they have coverage for employees should they get a work related illness or injury (otherwise known as worker’s compensation). That’s the bare minimum of coverage recommended for charities and other non-profit organizations.

Protecting board members

A particular type of insurance which can be invaluable for charitable foundations, but which is very often overlooked, is directors’ and officers’ insurance.

Members of a charity’s directive board can be personally sued if something goes wrong for the organization.

Charities rarely have the finances to cover their own needs so it’s likely that the board member would have to pay any costs themselves.

This is where directors’ and officers’ insurance comes in. If someone were to accuse a board member of liability, the charity’s insurance could cover the costs of defending them. If worse comes to worst and they were actually sued, the insurance could then help by paying off the claim.

Who would actually sue a charity?

Claims against board members of private companies largely come from employees, and the same is true for charities.

Applicants rejected for both paid and voluntary vacancies can sue if they feel they’ve been discriminated against.

Employees could also claim for things like unfair dismissal or sexual harassment.

Charitable organizations without employees sometimes think they don’t need directors’ and officers’ insurance. In smaller charities, this might be true; if risks are properly assessed and managed, directors’ and officers’ insurance might be an unnecessary expenditure.

However, not all claims against board members come from employees.

There have been examples of states’ attorney generals bringing action against a charity for a misuse of funds for engaging in charitable activity not specifically detailed in their charter, even when no third parties have raised complaint.

A patron could also sue a charitable foundation for misappropriation of funds if they perceive that their donation is not being used for the intended purpose, even if it’s still for the benefit of the charity, repairing damage to the headquarters, for example.

Risk management

Clearly, it’s difficult to make sure that charities operate in a way that’s totally risk free at all times. Even with some serious risk management, it’s impossible to perceive or prevent every possible eventuality.

Not only can directors’ and officers’ insurance cover the personal assets of board members, but it also helps protect the integrity of the charitable foundation. Considering the positive impact that charities can have on the lives of other people, they’re certainly something worth protecting.

This entry was posted in Directors' and Officers', Non-profit groups and tagged , , . Bookmark the permalink.

Share this

Comments are closed.