You know what a Trustee is and you know what insurance is. But what is Trustee Indemnity Insurance? And what are the benefits of this specialist insurance for a charity and its board of trustees?
Trustee Indemnity is a specialist insurance for charities that provides protection to the organisation and its individual trustees, governors, directors and officers. And often, its staff and volunteers. This insurance is known as Directors and Officers insurance (D&O) in the commercial world and is usually categorised as one of the ‘management liabilities’ insurances.
Trustee Indemnity (TI) insurance covers the cost of – and legal expenses incurred in relation to – claims made against your charity or against individuals working for it, for alleged wrongful acts. This insurance protects both the organisation and individual trustees.
Presuming that your trustees act in good faith in their role, their prosecution for wrongdoing is relatively unlikely. As described in this Association of British Insurers Trustee Liability Guide, the law generally aims to protect individual trustees from personal risk where they have acted in good faith and in compliance with the duties of a trustee (read more about what’s involved in being a charity trustee).
Are trustees personally liable for their charity?
An unincorporated organisation, such as a trust or association with no legal standing, cannot be liable as an organisation. In this instance, all contracts, arrangements and other legal relationships with third parties are entered into by the trustees as individuals. This is fine as long as the liabilities arising from these relationships can be met using charity funds; however, when charity funds cannot match their liabilities, trustees may be exposed personally.
In contrast, when a charity is incorporated as a charitable company limited by guarantee, Charitable Incorporated Organisation, Royal Charter body or community benefit society, the charity takes on its own legal identity. The charity then engages in contracts, arrangements and other legal relationships with third parties as itself and the trustees are not personally liable. There are exceptions, but these are rare.
However, whilst incorporating does provide some protection to individual trustees, this may not be the case depending on the charity’s governing documents. Some charities will agree to indemnify trustees (which means pay any claims against trustees out of charity funds), whereas some may not. Either way, Trustee Indemnity is the insurance that will protect charities from these claims.
So where does this leave charities in terms of insurance? Is there a need for Trustees Indemnity?
The charity’s own liabilities are generally protected through insurances such as Employers’ and Public Liability, professional indemnity, buildings and contents insurance and more. However, these do not protect the trustees or the charity if there is a claim levelled against either the organisation or the individual for a failing by a/the trustee(s).
Whether your charity is incorporated or not and whether they indemnify trustees or not, Trustee Indemnity insurance will protect your charity and your trustees from claims arising from trustee(s) breach of duty and will also cover the legal costs involved in the claim and, if necessary, defending it. Without Trustee Indemnity, the charity or trustee would be liable for any such claim.
Do you think you need Trustee Indemnity insurance? Call us on 0333 800 9838 or get a quote for Trustee Indemnity insurance online.