FINANCE NEWS: Insurer hits out at Commission

The Charity Commission has been accused of preventing charities from insuring their trustees and ignoring its own guidelines.

Charity insurers Royal & Sun Alliance have reported a 500 per cent increase in charities asking for assistance in persuading the Commission that they need to personally insure trustees.

Robert Craig, partner at law firm Finers Stephens Innocent, said: "One of my major charity clients has followed the guidelines in the Commission's booklet CC 49 but the Commission has refused to allow the trustees to be covered, even though the premium cost to the charity is only about £180 a year on a charitable expenditure of several million pounds a year.

This is a matter of great concern to many trustees in our increasingly litigious society."

Under Commission rules, charities that want to insure trustees against claims must first receive official approval because trustees are not allowed to personally benefit from their role.

Trustee Liability Insurance (TLI) insures trustees personally for damages and legal expenses arising from "innocent" mistakes made in the day-to-day running of the charity. Despite the fact that in 90 per cent of cases TLI reimburses the charity rather than the trustee personally, charities must still receive the Commission's approval to purchase insurance.

The situation has worsened in recent months after the Commission stepped up its checks on charity accounts.

According to Graham Mitchell, senior underwriter at Royal & Sun Alliance, TLI can cost as little £1 a head for a board of 20 trustees, but many charities have been locked in costly applications to convince the Commission that trustees are at real risk of being sued.

"This involves the charity in time-consuming correspondence with brokers and insurers and the Commissioners in an effort to resolve the impasse satisfactorily, and is just one more burden in an increasing tide of red tape," said Mitchell. "Insurers and brokers alike are experiencing a rising tide of queries from the Commission about the purchase of trustee indemnity insurance."

"The classic doctrine is that a trustee must not raid the charity's tills and shouldn't be getting benefits from the charity," said Craig. "But insurance is not feathering the trustee's nest, it is just covering the trustee for what they might be liable for."

According to Craig, the Commission is not following its own already strict guidelines on the matter which state that "Each charity must consider its own position and assess its potential liabilities in a realistic way."

Rosie Chapman, director of policy at the Commission, defended the body's policy but promised reforms to make it easier to get insurance. "Legally trustee indemnity insurance policies are seen as a personal benefit to trustees. As most charities do not have the power to benefit their trustees, the Commission's approval is usually required," she said.

She added that this policy ensures that trustees understand why they need this type of insurance. She added: "Looking to the future, we are looking at how we might streamline this approval process so that it relies more on the trustees own informed assessment of the need for trustee indemnity insurance."

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