When a charity or similar organisation becomes incorporated, either through the Charity Commission or Companies House, they can limit their trustees’ liabilities. So, why might charities limited by guarantee need Trustee Indemnity Insurance?
Limitation by guarantee is helpful for individual trustees who wish to limit their personal liability should there be a claim against their charity. Without being incorporated (i.e. without their organisation having a legal personality), any claims laid against the organisation may be the responsibility of the trustees personally.
However, The Charity Commission and the courts may choose to relieve trustees from liability if they have acted honestly and reasonably and have not benefited from their action. They do not seek to punish trustees unduly.
So, if trustees are unlikely to have to personally ‘foot the bill’ for their charity’s liabilities – presuming they have acted honestly and reasonably, why might they still benefit from Trustee Indemnity?
Why consider Trustee Indemnity?
Most cases involving allegations of wrongful acts by trustees are successfully defended and very few lead to damages being awarded and so the insurance cover is primarily involved in meeting defence and investigation costs rather than awards.
Charities sometimes choose to indemnify trustees to the full extent of the charity’s funds, reserves and assets provided the trustee has acted properly (this will be detailed in the governing documents or constitution if it is the case). Trustee Indemnity can protect these charity assets from being utilised both for defence costs and awards.
If charities are considering indemnifying their trustees in this manner, they should consider whether it is sensible and/or appropriate to place its funds, reserves and assets potentially at risk when they are primarily intended to be used for the charity’s ‘objects’ and activities.
Trustee Indemnity meets costs involved not just in cases of accusations, but also of ‘investigations’ – e.g. by the Charity Commission or HMRC – and these costs can be substantial, whether or not the trustees were at fault.
Insurers have extensive experience, and can call upon expert advice to protect and assist trustees when claims or investigations arise. They are a vital support mechanism in these instances.
Insurers will often take over the running of the claim leaving the trustees free to get on with their work (and of course, their day-to-day jobs). This not only frees the trustees’ time, but also alleviates stress.
Is Trustee Indemnity for you?
Though somewhat uncommon for insurance, in the case of Trustee Indemnity the decision as to whether it is worth having may not be about whether the insurance is good value against the immediate ‘pay-back’ of claims being paid, but instead it may be about:
- taking sensible steps to ensure that the trustees have in place a mechanism for dealing with the unexpected; and
- avoiding use of the Charity’s funds, reserves and assets for anything other than its main purpose.
How can you arrange Trustee Indemnity Insurance?
You can get a quote for Trustee Indemnity on the CaSE Insurance website. It’s a quick and easy process, and cover can be relatively inexpensive.
Cover is available on its own, or in combination with your other ‘management liability’ insurances including:
- Professional Indemnity
- Employment Practices Liability