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Trustees advised to review their personal risk of legal action

This Trustees’ Week (12-16 November), Towergate Account Executive and third sector specialist, Adrian Bonas, looks at why it’s important for Trustees to protect themselves, as well as their organisations.

Have you thought about what protection you have as a Trustee of a Charity/Not for Profit Organisation?

Trustees are vital to the Third Sector and take on considerable responsibility for their actions and that of their organisation.

Unintentional errors can and do occur and these can put Trustees at personal risk of legal action, claims for compensation and investigations by the likes of the Charity Commission, H&S Executive and other official bodies.

These claims can be financially crippling to defend, which is why trustee indemnity insurance is so important. It covers the legal costs and expenses of defending against disqualification as a trustee, investigations or extradition proceedings. The most important thing to remember is that without trustee indemnity insurance in place, the trustee themselves may have to pay the costs to defend the claim out of their own personal wealth – which can be financially devastating.

What sort of claims does trustee indemnity insurance cover?

Even when they have the best possible intentions, it is possible for trustees to make errors of judgment that can lead to investigations, enquiries or even legal proceedings.

For example, a few years ago, a large sports club ran into financial difficulties and approached the trustees of the club’s charitable trust for help. This existed to raise money to help young fans to take part in the sport; yet given the seriousness of the sports club’s situation, the trustees felt they had no choice but to help it avoid financial ruin and handed over a large quantity of money to the club. Unfortunately, as funding the parent club was not the purpose of the charity in question, an investigation by the Charity Commission inevitably followed, which focused on the erroneous actions of individual trustees rather than on the charity itself.

In a case, such as this, without trustee indemnity insurance, the significant costs associated with the investigation would have to be met by the trustees themselves.

It is also worth noting that trustees can be held personally responsible for more than simply financial irregularities. If, for example, the trustee of a community group issued a press statement that contained potentially libelous comments, any legal proceedings arising as a result would almost certainly be directed at the individual trustee rather than the charity, leading to a potentially substantial legal bill for the trustee, whether the allegations had any merit or not.

Alleged defamation

Following publication of an article, the charity trustees, were sued for defamation by another charity with similar objectives. The claimant stated that certain statements made in the article were untrue and gave a false representation of the charity.

Claim for alleged trespass

A neighbouring landowner to the charity claimed that recent construction carried out by the charity infringed on their property. The charity claimed their documents showed that the previous owner passed the land over to them, whereas the claimant argued that the land never legally belonged to the previous owner. Trustees were responsible for damages and for restoring the land to its former condition.

How can you protect yourself?

Trustees Indemnity Insurance covers three key areas: –

  1. Trustees/Directors and Officers Liability – This section of cover protects the personal wealth of you, the Director and any other management staff from the legal costs and awards in defending against civil, criminal and regulatory claims or investigations.
  2. Employment Practices Liability – This covers you the Trustee/Director and the business from claims from potential, current and former employees alleging breach of contract/employment law.
  3. Entity Legal Liability – Claims can be made against the Trustees, Directors and officers and also the organisation itself in tandem. This cover protects the legal entity from defence costs incurred relating to civil, regulatory claim or investigation.

More information on Trustee Indemnity Insurance Cover

If you are interested in learning more about the options available to your business, contact Adrian Bonas at Towergate on [email protected]