Protection for Trustees and Board Members

By Unity Insurance Services

| 01 November 2017

Unity Insurance Services explains how trustees or board members can understand their risks and responsibilities, and how to protect themselves from personal liability.

Working as a trustee or board member for a children's or young people's organisation can be very rewarding, but comes with certain risks and responsibilities.

It is imperative that you understand the risks involved in your organisation, your responsibilities and how to protect yourself from personal liability. Even if you are a volunteer, and acting in good faith, you could be held personally liable for your decisions.

Your Responsibilities

Once you become a trustee or board member, you will have certain duties and be required to follow relevant legislation. Your duties as a trustee include:

  • Duty of care. You must use reasonable care and skill in your work with your charity, including using any special knowledge or personal experience available.
  • Duty of prudence. You must ensure that your charity's finances are used appropriately, prudently, lawfully and in accordance with the charity's objective.
  • Duty to comply. You must ensure that your charity complies with charity law and with the requirements of the regulator. You may also need to comply with your charity's specific requirements or rules, such as avoiding personal conflicts of interest, and other legislation depending on the work your charity carries out.

Trustees of an incorporated charity registered with Companies House are likely be considered directors and be subject to principles under the Companies Act 2006.

Your Personal Liability

You may be held personally liable for any debts or losses the charity incurs. 

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 and board members act collectively, they could be collectively responsible for meeting this liability.

Reducing your Risks

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 law
  • Implementing effective internal management and financial controls
  • Knowing what areas of law might affect your charity's activities, such as employment, data protection, and health and safety
  • Ensuring that your 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 or Directors & Officers Insurance

Insurance Cover

Trustee Indemnity insurance (TII) covers trustees from having to personally pay legal claims made against them for a breach of trust or duty. This can include legal and defence costs, awards and settlements.
 
Directors & Officers (D&O) cover gives similar protection to board members and management.

Not only can individuals be held liable for a breach of duties, but your charity itself could also be held liable. Both TII and D&O cover 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 and D&O will not cover costs from a trustee or board member being convicted of fraud, dishonesty or reckless conduct.

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

Getting the Right Protection for Trustees and Board Members

The protection provided by TII and D&O policies are in essence the same.  However, you should check that the policy wording definition of "insured person" is wide enough to capture all those roles that require cover.

Unity Insurance Services, as a specialist charity insurance broker, can arrange the appropriate protection for your children's charity or youth group, and its trustees and board members.

For more information visit the Unity Insurance Services website or call on 0345 040 7702.

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