As we celebrate Trustees Week, it seems to be a sensible time to look at how trustees can use insurance as a way to protect themselves against some of the risks they face when taking on these roles.
Trustees have unlimited liability in the event that they commit a “wrongful act” (eg breaching regulations, acting outside your authority, misuse of funds) whilst running the charity (regardless of the legal entity they have adopted as their charity model). This means that, should they commit a wrongful act and be sued, a trustee’s own personal assets can be put at risk. If a court awards damages to a claimant, then the named trustee has to find the money to pay the damage from somewhere – savings, cash, property, etc is all at risk.
Charity constitutions sometimes allow the organisation to indemnify trustees in the event claims are made against them. However, the charity may choose not to do so, and even if the charity did choose to do so, it may not have sufficient funds to cover the claim amount. Make sure you a clear what arrangements your constitution has in place.
This is where insurance comes in. Trustees Indemnity covers the costs of any damages awarded, plus defence costs. This means that for a relatively small insurance premium, the costs of defending a claim against a trustee, and any damages awarded, can be covered (up to the limit insured).
Information about Trustees Indemnity, and other common insurances, can be found in our helpful buyers guide.
Trustees Indemnity operates differently to covers you may be more familiar with, such as Public Liability:
- Basis of cover – Trustees Indemnity policies can provide a limit of indemnity either in the ‘aggregate’ or an ‘any one claim’ basis. An aggregate limit simply means that the limit of indemnity noted in the insurance schedule is the most that an insurer will cover in any given policy period (usually a year). If the policy is set up on an “Any One Claim” basis the limit of indemnity will apply to each and every claim, irrespective of how many claims are made in the policy period.
- Claims Made – Trustees Indemnity policies are usually on a “claims made” basis. This means that cover is provided for claims brought against the charity during the policy period. By contrast, Public Liability policies are usually on a “claims occurring” basis where
the insurer at the time the loss/incident occurred will deal with the claim, irrespective of when the claim is brought.
- Prior & Pending Litigation Date – Trustees Indemnity policies usually preclude
coverage for claims from litigation that was pending prior to the start of the policy
In order to set up a Trustees Indemnity policy we need fairly limited information. We need to know which entity or entities are to be covered, where they are located along with previous years’ income and total assets. We also need to know about any redundancies, employment disputes and previous claims.
It is useful to look at some claims examples to see the kinds of scenarios where Trustees indemnity would kick in: