Trustees have ultimate responsibility for directing the affairs of a charity, and ensuring that it is solvent, well-run, and delivering the charitable outcomes for which it has been set up. They are also bound by the trust deeds, as well as statutory charity and in certain cases, company law.
The role of ‘trustee’ comes with unlimited personal financial liability. Failure to exercise due care in the performance of their duties could result in the trustee being sued for ‘wrongful acts’. All trustees are jointly and severally liable for the actions of their other trustees.
A claim can arise when a trustee(s) commits a ‘wrongful act’ (which can even be an innocent mistake which then results in a financial loss). A ‘wrongful act’ may include a Breach of Duty, Trust or Authority; a Breach of Statutory Law; Misleading statements, Libel or Slander. A Trustees Indemnity policy will protect both the trustees and the charity in the event that they are sued by a third party for such a breach.
Most organisations rely on their insurance to protect them should the worst happen. H however, insurance policies will undoubtedly include requirements which must be complied with.eg specific lock standards on exit doors; petty cash being reconciled monthly. Without a clear understanding of these requirements the trustees may be placing the charity and themselves personally at further risk.
Trustees Indemnity policies generally have three insuring clauses;
An indemnity to individual trustees, directors, officers and employees with management responsibilities.
A re-imbursement to the charity if it has indemnified the trustee.
Some policies will also provide an indemnity to the charity itself; if it exists as a separate legal entity (for example it is a limited company). This is commonly referred to as ‘Entity cover’
The Charity Commission also requires that the policies exclude Criminal Acts, and Reckless or Deliberate Acts. These exclusions must be present for the policy to be ‘Charity Commission compliant’.
Trustees Indemnity claims are varied, as there are a multitude of actions which could be considered to be ‘wrongful’. In a recent claim a trustee implied that employees would receive an enhanced redundancy settlement. The employees made purchases based on this assumption, and sued when no such package was given.
Trustees Indemnity policies are typically written with an aggregate limit of indemnity – so the limit is the maximum that will be paid out in any policy period – and on a claims-made basis, so the policy will respond provided the claim is made during the policy period.
Limits of indemnity are generally between £100,000 and £1,000,000 and many insurers will offer higher limits if required.
Trustees Indemnity premiums can range from a couple of hundred to several thousand pounds depending on what the charity it actually doing, how large the charity is in terms of income and assets and how active the charity is.
Other factors such as whether there are any high profile trustees, whether the charity is financially stable and whether there are any previous claims or losses will also affect the premium.
Whilst the focus remains on the charity to ensure that trustees are adequately educated and take full responsibility for their actions, the insurance industry is committed to assisting them as much as possible in their role. Whilst the insurer is there to protect their clients in the event of a loss, by providing assistance in managing the risks adequately, a loss may be avoided completely.
‘Prevention is better than cure’ is rarely more pertinent than in this industry.