Unity Insurance Services

TLC: Trustee Liability Considerations

Hira Choudhury-Inns, managing director of Unity Insurance Services, explains how, with the help of a specialist insurance broker, a trustee can understand the risks involved and protect themselves from personal liability

Hira Choudhury-Inns
Hira Choudhury-Inns

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Unity Insurance Services is a charity-owned, specialist insurance broker for UK charities, voluntary and not-for-profit organisations

Working as a trustee for a charity can be a very rewarding experience. However, even if you are a volunteer there is still a certain amount of risk involved in holding one of these positions. Even when acting in good faith, you could be held personally liable for your decisions. As a trustee, you must understand the risks and responsibilities involved and how to protect yourself from personal liability.

Your responsibilities

Once you become a trustee, you will have certain duties and will be required to follow relevant legislation. The following are general duties all trustees have:

  • Duty of care. The trustee must use reasonable care and skill in his or her work with the charity, including using any special knowledge or personal experience available.
  • Duty of prudence. Trustees must ensure that the charity’s finances are used appropriately, prudently, lawfully and in accordance with the charity’s objectives.
  • Duty to comply. Trustees must ensure that the charity complies with charity law and with the requirements of the regulator, as well as their charity’s specific rules. Other legislation might also apply, depending on the work their charity carries out or if it is an incorporated charity registered with Companies House.

Your personal liability

As a trustee, you may be held personally liable for any debts or losses the charity incurs. If the trustees incur debt or liabilities that total more than the charity’s assets, they might not be able to fully cover themselves with the charity’s resources, even if the liabilities have been properly incurred.

If you act recklessly or are in breach of the law or governing document, you may be held personally responsible for any liabilities the charity incurs as a result. Because trustees act collectively, they could be collectively responsible for meeting this liability.

Reducing your risks as a trustee 

There are some steps you can take to help reduce your personal liability risk, such as:

  • Familiarising yourself with the governing document
  • Seeking professional advice when needed, when unsure about duties or when required by statute
  • Implementing effective internal management and financial controls
  • Knowing what areas of law might affect the charity’s activities, such as employment, health and safety, and data protection
  • Ensuring that the charity has the resources to meet its requirements under any contract it signs, and understanding the consequences if there is a breach of contract
  • Establishing effective induction procedures for new trustees
  • Considering trustee indemnity insurance for your charity and its trustees.

Trustee indemnity insurance

Trustee indemnity insurance covers trustees from having to personally pay legal claims made against them, either by the charity or a third party, for negligence or for a breach of trust or duty. This can include legal and defence costs, awards and settlements.

Not only can trustees be held liable for a breach of duties, but your charity itself could also be held liable. TII can also include protection for your charity against corporate liabilities arising from claims due to a breach of duties by a trustee or senior management.

However, TII will not cover costs from a trustee being convicted of fraud, dishonesty or reckless conduct.

It is important to remember that without trustee indemnity insurance in place, as a trustee you might have to pay the costs to defend the claim out of your own money, which can be financially devastating.

Getting the right protection for trustees

Your charity can purchase TII as a benefit for its trustees or you could buy this individually.

A specialist broker, with their in-depth understanding of the charity insurance market, can not only recommend the right cover, but also the right insurer for you at the right price. You will have the added peace of mind that you and your charity will have the right protection in place.

To find out more about how Unity Insurance Services can protect your charity, call 0345 0407702

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