12 February, 2013
Trustee Liability and CIO’s
Legal liability of Trustees, new legal entities and insurance
The role of a Trustee is vital to the ministry of any church. However, Trustees often do not appreciate the personal financial risk that they carry by taking on this area of responsibility. There have been some changes recently which limit the liability of trustees and directors and these finally became a reality with the introduction of the Charitable Incorporated Organisation (CIO) in January 2013 after being introduced in the Charities Act of 2006. This 2006 Act, now replaced by the Charities Act 2011 also allows trustee indemnity insurance to be purchased by the charity, even if there is no power to do so in the governing document, providing it does not specifically prohibit the purchase.
There is often a perception that where a church’s legal status is that of a charity and a company limited by guarantee, that you can avoid liabilities over the nominal amount of, typically, £1.00 per trustee. However this relies on the assumption that any action taken against the organisation or trustee will not be dealt with. To rely on this limitation, it is likely that the organisation would have to be wound up. Of course in practice the organisation would wish to continue with its activities and the purchase of indemnity insurance would allow this to happen, and for the action brought to be defended, which is good use of the organisations money.
As a Trustee or Director of a charity, you can be held personally or jointly liable if you are found to have committed a ‘wrongful act’, even if you are innocent of careless intent. The term ‘wrongful act’ is quite wide in its meaning but encompasses actions that involve breach of duty or breach of trust. Therefore, if a Trustee inadvertently or ignorantly neglects their duties as a Trustee, this could lead to a claim that is unlimited in amount.
Whilst relatively few claims originate in this area, the costs to defend such claims can be costly. By purchasing Trustees Indemnity insurance, or Directors and Officers insurance as it is called in the commercial sector, indemnity can be provided in respect of the costs and damages for which Trustees and Directors become legally liable. Typically a Trustee Indemnity policy may also be packaged with professional indemnity insurance, fidelity crime insurance and management risks of the entity thus making the cover even more affordable.
To discuss any of these issues or to check whether you have the correct level of cover, please contact Chris Bryant on 020 8651 7420.
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