Protecting your trustees
Trustee indemnity insurance – your duty of care
The not-for-profit sector comprises a variety of legal structures, from registered charities through to charitable incorporated organisations (CIOs), institutions and trading companies limited by guarantee. Your legal status will have a direct impact on how to protect trustees and/or directors, as well as the senior management team generally.
- Charities with trustees: you’ll need charity trustee indemnity insurance; this usually includes directors and officers of the organisation as well as the trustees.
- Organisations limited by guarantee: having directors rather than trustees will need directors’ and officers’ liability insurance.
Certainly the biggest personal risk in charities rests with trustees who can be held liable for committing a wrongful act. As individuals or as a board, they are collectively responsible.
The trustees have a general obligation to control and manage the administration of the charity - in particular to make sure that the charity remains solvent, is well managed, and delivers on the public benefit it has been set up to provide. Whether you are one of the 940,000 registered charity trustees (Guardian, Nov 2015), or a director of a not-for-profit organisation limited by guarantee, you will want to arrange protection for the charity itself and for others in your position.
Why do you need charity trustee indemnity insurance?
Trustees and directors have a number of responsibilities that must be executed, for example:
- A duty of care and skill as trustees, which includes an obligation to obtain external professional advice where appropriate.
- To ensure that the organisation complies with regulation from the Charity Commission (and possibly other regulators as well), charity law more generally, and that it operates within the confines of the organisation’s governing document.
- Some charities have a trading arm that takes them into compliance with the Companies Act 2006 - this shouldn’t be forgotten.
- To demonstrate prudence in handling the charity’s finances and to make sure it keeps true to its mission as well as remaining solvent.
- On a personal level to act with integrity and avoid conflicts of interests.
How do these responsibilities translate into actual risks that need to be mitigated?
- Data protection and regulatory investigations
- Actions by Local Authorities under contract or generally
- Actions by service users and other stakeholders
- Actions by former or current fellow trustees.
Depending on the size of the organisation limits for trustee indemnity insurance by charities vary from £100,000 for the very smallest, up to £25-50 million for the largest. In our experience common limits tend to range from £1 million to £5 million.
How do you set trustee indemnity insurance limits?
You’ll need to consider the following points:
- The limit has to include costs and expenses too so should be uplifted by such an amount or calculated to include it.
- The limit has to cover all insured parties – that’s individual trustees, directors, officers and the charity itself - against allegations.
- The cost of trustee indemnity insurance varies by limit required. In fact you might be surprised how little additional premium you need to increase your limit.
Cover can be arranged on a stand-alone basis or as part of a package.
Come and talk to us to find out more.
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