Protect your trustees from personal liability

  • Volunteer trustees are vital to the running of UK charities
  • There are around 940,000 trustees in the UK
  • We look at the importance of ensuring trustees are protected from personal liability

Charities may vary hugely in size and focus, but they all rely on trustees – indeed, there are an estimated 160,000 charities in England and Wales, with more than one million trustee positions.

It is a role that’s usually unpaid, yet one that is absolutely vital to the voluntary sector. These are the people with ultimate control for the management and administration of the organisations they serve.

The job could be likened to that of a navigator – charged with keeping a steady course. As the individuals who also ensure a charity meets its legal obligations, with responsibility for senior appointments and keeping a check on the finances, trustees have the ability to make a real difference to their chosen cause.

Dealing with bumps in the road

But, as anyone who has ever held such a position knows, there is always the possibility of unforeseen bumps in the road, however diligent you may be.

Trustee indemnity insurance is one way of protecting trustees from personal liability.

“When people take on the role of charity trustee, they take on legal responsibilities, of due care and attention, for example,” explains Simon Tresadern, portfolio manager at Zurich.

“If they make an innocent error in the management of the charity they can potentially be sued as individuals by third parties who have suffered a financial loss. So it is important that they protect themselves.”

Trustees’ responsibilities

There is also potential for trustees to be personally liable for actions undertaken by the charity as a whole.

This can relate to the services provided, statements or publications produced, or funding agreements entered into.

There can sometimes be unexpected assumptions of responsibility, as with the Wedgwood Museum Trust case, where the trustees found themselves liable for a group pension deficit.

Trustees don’t operate in isolation – meaning that where they delegate responsibilities to others, those people may also be liable.

Trustee indemnity policies will usually cover directors, management committees and anyone else with the ability the make decisions on behalf of the charity, according to Tresadern.

And yet it’s not a one-size-fits-all solution. Whether this type of insurance is appropriate for a particular organisation as a whole will depend on the nature of its work.

Caron Bradshaw, chief executive of Charity Finance Group, which champions best practice in finance in the voluntary sector, explains: “Depending what business the charity is in and what sort of risk it’s looking at, trustee indemnity insurance can be a really cost-effective way of covering some of those risks,” she says.

“But you have to think what risk you’re trying to mitigate, and if indemnity insurance is the right way of doing that.”

Level of exposure

If a charity is incorporated, it will already have some level of protection against risk. Bradshaw notes that ultimately the decision about whether to get trustee insurance should come down to a charity’s activities rather than its legal structure, and all voluntary sector organisations should look at their exposure.

She advises that charities ask themselves a number of questions – including what the key areas of risk might be, what controls you have in place to mitigate that risk, and whether trustees’ exposure to risk might be a barrier to bringing new trustees on board.

Bradshaw agrees that there can be misunderstandings within the voluntary organisations about their level of exposure.

“Sometimes smaller organisations will miss some of the levels of risk because they think about it in terms of their size,” she says.

“For example, if you happen to be a small pre-school and you find yourself inadvertently discriminating against a member of staff, you might think that from an employment tribunal perspective your exposure is likely to be small because you’re not paying a lot of wages.

“But if you then throw into the mix things like gender or sexual orientation or religion, and that the penalties can be unlimited, you start to see exposure for the trustees isn’t just the £30-£40,000 turnover of the organisation; it could be an awful lot more.”

Check the small print

It’s also important to think seriously about what level of indemnity you actually require. Tresadern notes that he sees a lot of enquiries from people asking for a £5m limit of trustee indemnity, likely to be appropriate for big national charities.

It is always advisable to speak to your insurer to ensure you have the correct level of cover. Remember to read the small print – it can make all the difference to how well you’re protected.

“Make sure you understand the policy and what its limits are,” says Bradshaw. “If you think of it as a box-ticking exercise, just so you can say you’ve got trustee indemnity insurance, you’re probably just buying yourself false assurance. You need to be aware of what it’s covering you for and, more importantly, what it’s not covering you for.”

Charities need to think like businesses – and any smart organisation, whatever the sector, will be guided by a full understanding of its specific needs. So, do your research, and take time to assess your trustees’ exposure. This will provide a solid base from where your trustees can shape your charity’s future.

The Zurich risk guides

We have produced a series of tailored, easy-to-follow guides to make insurance and risk management in the charity sector easier to understand. The aim is to make this subject simple and, where possible, remove barriers to activities so that the efforts and pursuits of community and social organisations are not hindered.

We know your communities and customers must come first, and our ethos is that insurance is there to facilitate the customers being innovative and taking risks in a managed way. For more information please click here: