Trustee Indemnity insurance – everything you need to know

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Trusty Indemnity - everything you need to know

Trustees play an essential role in the day-to-day running of charities, voluntary organisations and community groups. Due to the nature of what they do, trustees of even the smallest charity or organisation can take on a lot of responsibility for their actions as well as the actions of the organisation they represent.

This can put trustees at risk of compensation claims, legal action or official investigations made against them personally for the decisions they make. These claims can not only be financially crippling to defend, they can also put a tremendous amount of strain on the trustee – which is why Trustee Indemnity insurance is so important.

Below we have explained everything you need to know about Trustee Indemnity insurance, what it covers and why your charity or organisation might need it. There’s also a section of FAQs regarding trustee’s responsibilities related to coronavirus.

For more information or to get a free quote visit our Trustee Indemnity Insurance page.

What is Trustee Indemnity insurance?

When individuals volunteer to become trustees to support your charity or organisation, you may want to consider how you can protect them.

Trustees Indemnity insurance provides financial protection to trustees in the event of legal proceedings or regulatory action being brought against them as a result of their activity with your charity.

The insurance can cover the costs associated with defending such a claim, as well as any damages that are awarded, in line with your policy limits.

Claims can be made against trustees for a variety of reasons, such as breach of trust/duty, committing a wrongful act, mismanagement and even libel. See below for some real-life examples of claims.

Having a Trustee Indemnity insurance policy in place not only provides peace of mind for your current trustees, it can also help your organisation attract and retain new trustees.

Policy definitions

Below are a selection of definitions which help to explain the intentions of Trustee Indemnity cover:

  • Wrongful Acts – include actual or alleged error, misstatement, misleading statement, omission, neglect, breach of duty, breach of trust, libel, slander, breach of contract, breach of warranty of authority, wrongful trading, Employment Wrongful Act or other act
  • Employment Wrongful Acts – means any actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty committed or attempted against any past, present or prospective Employee or Trustee of the Policyholder, in connection with wrongful or unfair dismissal; breach of employment contract; violation of employment discrimination laws; wrongful failure to employ or promote; wrongful demotion; discipline or deprivation of career opportunity; failure to grant tenure or adopt adequate policies or procedures; retaliatory treatment; negligent evaluation; invasion of privacy; breach of data protection legislation; libel; slander; humiliation; defamation; infliction of mental anguish or emotional distress; breach of TUPE regulations

Why is Trustee Indemnity insurance important?

Trustees acting on behalf of your charity or voluntary organisation can take on certain responsibilities and obligations that could expose them to potential legal proceedings.

Any trustee, director, officer or employee (including volunteers) that fails to meet their legal obligations while carrying out duties on behalf of your organisation can be held personally liable – and therefore open to the prospect of having to defend a legal claim made against them.

This could potentially be financially ruinous for the individual involved, which is why Trustee Indemnity insurance is so important – it can provide cover for legal costs and any award of damages, meaning the personal assets of your trustees are not in danger.

What does Trustee Indemnity insurance cover?

A Trustee Indemnity policy will provide cover for the costs of defending and settling claims made against your trustees for:

  • Charges in relation to a breach of duty or trust, negligence or defamation
  • Health and safety issues, including corporate manslaughter
  • Employment disputes and tribunals
  • Managing or operating employee benefits schemes and pension funds

The policy covers the costs associated with damages, compensation, contributions, judgements or settlements; claimant’s legal costs and expenses; punitive, exemplary and aggravated damages (except for such damages awarded in respect of an Employment Wrongful Act or a claim made in the USA); all other costs and expenses ordered by a court or tribunal; defence costs; in respect of an Employment Wrongful Act only, the employee’s wages during the period of dispute.

What are a trustee's duties and responsibilities?

Claims can be made against trustees for actions or decisions they make in line with their duties and responsibilities.

The extent of the duties and responsibilities of a charity trustee is a very broad topic beyond the scope of this guide. You can find detailed guidance on this from the Charity Commission for England and Wales.

Trustees can be held responsible for liabilities arising from them carrying out their duties on behalf of the charity or voluntary organisation, for example:

  • Be liable for the organisation (e.g. breach of trust)
  • Be held responsible for any breaches of criminal law
  • Be liable for an infringement of another’s rights under civil law

For more information on the liabilities of a charity and its trustees, read the Charity Commission’s guide: Vicarious liability of a charity or its trustees.

What level of trustee liability cover do I need?

The amount of cover you might require for your trustees will depend on a variety of factors, including the size of your organisation, the nature of your activities, how many trustees you have and so on.

Trustee insurance can provide cover up to £10 million, and the costs vary depending on the level of cover you need.

A key factor for insurers when determining your premium terms is the financial stability and operational history of your organisation. Underwriters will typically review your latest reported financial statements via the Charity Commission charity register to consider any negative trends and the likely severity of trustee indemnity claims.

Trustee Indemnity insurance limits of liability

There are typically two forms of Trustee Indemnity policy:

Aggregate basis – this means the amount insured under the policy is aggregated across each claim that is made during the policy period – so the cover limit is the maximum amount that can be paid out under the policy/

Any One Claim basis – this means the amount insured under the policy applies to each and every claim (or importantly a series of claims arising from any single event).

Trustee Indemnity policies also tend to include a ‘change in control’ provision. If your charity or voluntary organisation is merged with another or is acquired, then the policy will stay in effect for the remainder of the policy period. However, it will only apply to claims based on any wrongful acts that occurred before change of control came into effect.

What is an extended reporting period?

Many Trustee Indemnity insurance policies offer the option to purchase an extended reporting period. This allows claims to be reported to the insurer after the initial policy period has expired, and ensures protection from any wrongful acts by trustees that have already been committed but you have not yet received notification of any claims.

The policy will typically set out what extended reporting periods are available, with many offering a reporting period of up to six years. The extended reporting period will not offer a new limit of liability, only an extension to the initial policy period.

Trustee Indemnity insurance claims examples

Due to the varied nature of a trustee’s role, there are a lot of different claims that can be made against them. We have collated some real-life Trustee Indemnity claims examples below:

Claim for alleged trespass

The neighbouring landowner claimed that recent construction work carried out by a Trust infringed on their property. The Trust had documents that show the previous owner of the land passed the rights over to them, however it was found that the land never legally belonged to the previous ‘owner’.

Trustees were subsequently held responsible for damages and the costs of restoring the land to its former condition.

Claim for alleged defamation

Following the publication of an article, the trustees of a charity were sued for defamation by another charity with similar objectives. The claim was that certain statements made within the article were false and misrepresented the charity.

Trustees were liable to pay damages and legal costs incurred.

Claim for misuse of trust funds

An investigation by the Charity Commission found that a trustee had illegally gained payments from the Trust through another company of which they are a director. The Charity Commission states that there is a conflict of interest and that the salaries and dividends must be returned and the Trust be re-structured.

Trustees were liable for reimbursement of legal fees incurred.

Claim for alleged breach of authority

A claim was made against a charity trustee by an employee. Before the charity ceased operating the trustee had indicated that employees would receive an enhanced redundancy payment – a promise that was in breach of his authority. The employee made financial decisions based on the promise of enhanced redundancy terms, and subsequently incurred costs to cancel these financial arrangements when the promise was not kept.

Trustee was found to be in breach of authority and liable for damages and legal fees.

Claim for alleged unfair dismissal

A charity employee who was dismissed from her position alleged a claim of sex discrimination against the Trustees of the charity. The charity’s position was that the employee was dismissed due to unacceptable behaviour.

Although the claim of sex discrimination was not upheld, the Trustees were liable to pay significant defence costs.

Claim for alleged breach of trust

A Charity Commission investigation led to allegations that the charity was using its charitable status to avoid tax on their trading subsidiary.

The charity was required to re-structure their operation at their own cost, as well as pay legal fees and considerable costs related to the financial investigation.

Trustees’ responsibilities during coronavirus – FAQs

During the coronavirus crisis, charity trustees will want to make sure they are complying with their duties and meeting their responsibilities.

To help, we reached out to a number of charities and individual trustees to ask what questions they had and what areas they were unsure about. We have collated these questions and provided answers to them below.

If you have any further questions regarding your charity and coronavirus, please contact us and will do our best to help. You can also visit our Trustee Indemnity insurance page for more information.

Furlough questions

We received a lot of questions from charity and voluntary organisations regarding the furlough process. See below for the answers and links for further information.

Which staff members should we furlough?

When deciding which employees to furlough via the government’s Coronavirus Job Retention Scheme, you should start with looking at the government guidance regarding which types of service are eligible for the scheme.

The government says: “Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them.”

The government has advised that some public services should continue throughout the crisis, for example domestic abuse services and drug and alcohol services, as they help protect vulnerable people in society and can reduce the burden on other health care providers.

In the VCSE sector, the furlough scheme may therefore be appropriate for some staff if your organisation is not primarily funded by the government and the staff members cannot be redeployed to help with the coronavirus response.

Read more: Furlough: the new buzzword. What does it mean? – valonline.org.uk

Can furloughed staff volunteer for us?

Furloughed workers are allowed to volunteer, but not for their own organisations/employers.

As part of the Coronavirus Job Retention Scheme, the government states that furloughed employees cannot do any work for the organisation that has furloughed them. This includes providing services as well as revenue generating activities.

Last month (May 2020), a group of 60 charity leaders called on the government to grant an exemption to this rule for voluntary sector staff, but this was declined as the government is wary of fraudulent claims to the furlough system.

Read more: Charities minister rules out allowing furloughed workers to volunteer for their own organisations – thirdsector.co.uk

Operational questions

Many of the questions we received related to the day-to-day running of a charity, and how their operations had been affected by the coronavirus lockdown.

What are the rules regarding not holding AGM’s or trustee meetings? Can virtual AGM’s work instead?

Charity trustees who are unable to hold an annual general meeting (AGM) or other key meetings in compliance with their Articles of Association must make sure that the decision to postpone is recorded.

Any record should make note that the decision was taken in light of the current health advice, and that plans to hold the AGM will be made as soon as is reasonably possible following government advice and guidance.

Where meetings are held virtually in order to safeguard the health of trustees, this should be clearly recorded in the minutes of each meeting and the Charity Commission will then accept this as a valid meeting as long as it is quorate.

Will we be penalised for missing our annual reporting deadline?

As it stands, no charity will be penalised for missing its annual reporting deadline – so no organisation will be marked as in default on the register of charities if they fail to meet their deadline.

It is recommended that any charity that finds themselves in this position to contact the Charity Commission as soon as possible to keep them updated.

Can we use restricted funds to support the charity in any COVID-19 response?

First of all, it is important to ascertain whether the funds are in fact restricted and not ‘designated’, as the two classifications are quite different.

  • Restricted funds are where a third party (e.g. donor or grant maker) has placed a restriction on their use.
  • Designated funds are where the charity trustees have chosen to set aside a certain amount of unrestricted funds for a specific use e.g. a repair fund to ensure there is enough money available to keep a building in good condition.

If the funds are indeed classed as ‘restricted’, then in some instances there may be avenues available to you to amend the restrictions. However, accessing or releasing any restricted funds should only be considered if other options are not possible.

One of the biggest obstacles to using restricted funds is that the funds may comprise donations from a large number of individual donors, and it would not be practical to contact them all to ask their permission to use the funds differently. If the charity trustees determine it to be appropriate, they could consider utilising their normal communication methods, such as newsletters and social media, to inform donors that they are proposing to use their donations in a different way. Providing that no objections are then raised within a set period of time, the charity could then be free to use the restricted funds for an alternative purpose.

It is important to also inform the Charity Commission of your intentions to make sure they are aware and can approve of your plan to inform donors.

In cases where the restricted fund has been created by a single donation and it is not possible to contact the original funder, then you should not use these funds as there is way for the charity trustees to address the trust that the donor has placed in the charity.

Where can we access emergency funds?

We have collated a list of some of the funding opportunities currently available for charities to help them through this period of uncertainty, which you can find here: https://bhibcharities.co.uk/news/8-grants-currently-available-to-charities/

In response to the coronavirus crisis, the chancellor Rishi Sunak announced new funding for charities across the UK.

£370 million of the funding is to support small and local charities working with vulnerable people. In England, this funding support will be provided via organisations like the National Lottery Communities Fund.

The UK government has also committed to provide £360 million of funds directly to charities that provide essential services. Up to £200 million will go towards supporting hospices with the remainder going to organisations like St John’s Ambulance and the Citizens Advice Bureau, as well as charities that support victims of domestic abuse, vulnerable children and disabled people.

What action do we need to take if we are temporarily changing our charity’s purposes?

Many charities and voluntary organisations are considering how they can help in the national effort to fight the coronavirus pandemic and its severe impact on people across the country.

First of all, you should review the terms of your charity’s existing charitable purposes or ‘objects’ which are set out in your governing document. Some purposes that might already allow you to offer support include:

  • the relief of poverty
  • the relief of need hardship or distress
  • the relief of the elderly
  • the advancement of education or advancement in life of young people
  • the advancement of health

In considering what your organisation can do under your existing purposes, you will also need to check whether your purposes have restrictions, such as to benefit a certain locality or class of beneficiaries. If your existing charitable purposes do not allow you to help then you might be able to amend your governing document in order to change the purposes.

However, it’s important to first consider:

  • whether there are any other charities/organisation that are better placed to respond than yours.
  • the wider and longer-term impacts of using your charity’s money for purposes other than those for which it was raised. For instance existing beneficiaries – whose needs may be less pressing but no less deserving – may suffer from the loss of service provided by your charity

About BHIB Charities Insurance

BHIB Charities Insurance specialise in providing tailored cover for community groups, clubs, societies, voluntary organisations and hobby or special interest groups. We offer more than just insurance and we are passionate about supporting local communities.

To find out how we can help your charity or not-for-profit organisation, email us on hello@bhibcharities.co.uk or call 0330 013 0036 to speak to our friendly, expert team.

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Luke Glassford

Luke Glassford

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