What can happen when insurance misfires

David Ainsworth talks to the experts about what can go wrong

Charity insurance
Charity insurance

The fact that a charity has taken out business interruption insurance does not necessarily mean that all of its costs will be covered.

Mark Ingram, director of Case Insurance, recalls how a counselling and advice charity found itself out of pocket after flooding forced it to close its offices. When the charity went to make a claim, it found that its business interruption insurance covered only loss of earnings. Since the charity was not a trading operation, its insurer argued that the charity had no earnings to lose and refused to pay out.

"Many charities are sold business interruption insurance because what they do is poorly understood," Ingram says. "They actually require additional expenses insurance."

It's also best to check that a charity's policy adequately covers all aspects of its work both in the UK and abroad.

Peter Heap, founder of Ark Risk Consulting, recalls discovering one UK-based international aid charity that had bought employer's liability and public liability insurance that only covered staff for up to six months abroad. But the charity had staff permanently stationed abroad and it would have faced considerable costs had it been sued or if a member of staff had suffered an accident.

Most charities will have some form of legal expenses insurance that they expect to cover their costs in legal cases. But the insurers will pay out only if the charity takes its advice.

Case Insurance's Ingram recalls hearing of a charity that faced a hefty legal bill after a senior member won a wrongful dismissal claim. The charity was ordered to pay legal costs running into several thousand pounds. But the insurer refused to cover the charity's costs, claiming that it had not followed the proper procedure. Ingram says: "Often you need to contact your insurer first to check they are happy you have taken all proper steps."

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