Charities, Associations and PI insurance
Trustees/Directors - These are the individuals responsible for the management and administration of a charity or association. They are usually identified under the charity’s governing document (rules) for controlling the management of the charity. For instance, in the case of an unincorporated association, the executive or management committee are its charity trustees, and in the case of a charitable company it is the directors who are the charity trustees.
A vast range of commercial work is undertaken by charities and associations including research and development, property management, sports organisations such as football clubs and golf clubs, welfare services, care in the community, design consultants, training and many other activities.
Duties and responsibilities
Trustees may find themselves in a position of having to prove that they made an ‘honest’ mistake. Failure to demonstrate that they acted honestly may result in a personal liability and in the absence of adequate cover their personal assets would be on the line. Even trustees who acted honestly and reasonably will often require expensive legal advice and representation before ultimately being relieved of personal liability or being indemnified from charity funds.
How do insurers rate a risk and what do they look for?
Insurers will want you to complete a proposal form but can generally obtain an indicate of terms on the basis of the latest accounts. Business activity and financial status are major underwriting criteria, whilst the number of trustees/directors is a relatively unimportant factor.
Clearly the activity of the charity or association will have a bearing on the risk. The trustees of a gardening club will be less exposed than those of a medical research charity.
The size of donations and funds managed is an important factor. A small charity supporting local community projects such as fund raising for the construction of a new village hall will have far less exposure than a large charity with a multi-million pound income.
What is the financial status of the charity/association? Most organisations are not run for profit but insurers do look at the accounts in order to establish that the organisation is properly financially managed.
Examples of claims
The selection of trustees
Trustees must be selected for what they can contribute to the charity. They should not be appointed for their status or position in the community alone; this is the function of patrons. Trustees need to be able (and willing) to give time to the efficient administration of the charity or association and the fulfilment of its trusts. It is recommended that they are selected on the basis of their relevant experience and skills and must be prepared to take an active part in the running of the charity.
What powers do trustees have when investing funds?
Risks for charities and associations can be minimised by considering these options:
The Charity Commission for England and Wales has established guidelines for charities, associations and their trustees when purchasing insurance. The guidelines are summarised in publication CC49 available from the Commission. The Charity Commissioners do not object to and can authorise payments from charity funds to purchase appropriate trustee indemnity insurance.
Main bodies with PI rules
At present there are no established professional bodies that represent charities but they are bound by the rules and regulations (publication CC3) of the Charity Commission.
Where can liability arise
When the charity/association is a victim of fraud, Charity and association governors, directors, council members, officers, trustees, employees and volunteers are often entrusted with cash (including donations) or given the means to authorise financial transactions in the name of the charity or to access its accounts. The charity or association can become the victim of fraud or other dishonest and malicious acts.
Cover can be tailored to provide insurance for either the ‘professional’ exposures of the charity or, a special charities policy can be provided. Policies are generally underwritten with the limit of indemnity on an aggregate basis including costs and expenses incurred in the investigation, defence or settlement of all claims made against the charity or association. The excess will usually apply to each and every claim including all costs and expenses incurred in the investigation, defence or settlement of any claim.
The usual cover
A special charities wording is designed to indemnify both the charity/association and the trustee/director. So, the policy will indemnify a charity/association where the trustee or director has incurred personal liability but has acted honestly and therefore may be entitled to indemnity from the charity’s or association’s finances.
In circumstances where the trustee/director cannot expect indemnity from the charity/association, the policy will cover the individual trustee/director. Wrangles over who pays what and when can therefore be avoided.
Cover is available for any charity or association, whether incorporated or not. It extends protection to include all employees, where appropriate, and makes provision to cater for external ‘not for profit’ and shadow directorship appointments. PI indemnifies the charity, association, its managers, employees and appointees against damages, own and third party costs and expenses which arise from a ‘wrongful act’ committed in the conduct of the charity’s or association’s ‘professional services’.
Cover is usually provided under four separate insuring clauses:
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