Trustee Liability Insurance – What You Need to Know
For trustees of a charity this may be their most important policy as it protects their personal liability for breach of their duties as a trustee of the charity for which they could be personally liable to recompense the charity for losses incurred, or return any gain they have made as a trustee. Many trustees offer their services for free and are rewarded by the sense of giving something worthwhile back to society and may not realise that their personal liability doesn’t just cover what they do but also potentially what they don’t do.
Two fundamental elements of a trustees role include safeguarding the assets of the charity and ensuring they are acting with care. So if appropriate procedures aren’t in place and something goes wrong the charity or the Charity Commission may hold them personally liable for not ensuring procedures are in place. Such action is incredibly rare and this is reflected in the cost of insurance.
There can sometimes be confusion with the terminology used to describe trustee liability. The key difference is that directors and officer’s liability insurance is more commonly provided for businesses, whereas trustee liability insurance is provided for charities, community groups and not-for-profit organisations. Trustee cover is just one element of a management liability policy which is also designed to protect the charity against its legal liability as an entity. If somebody brings a claim against the charity and the charity is found liable, a management liability insurance can pay out for the costs.
The main duties of a trustee are to make sure the charity is working for the public interest, ensuring that the charity is complying with governing documentation and the law, act in the charity’s best interests, managing the resources responsibly, act with reasonable care and skill and ensure that the charity is accountable. This can be a significant exposure if your trustees are only working a few days a week and may not be being paid for the role.
Errors and omissions can occur and whilst the Charity may fund some of the costs associated with this, the potential exposure could exhaust the funds of the Charity and the trustee as an individual, as well as being a significant distraction.
Some important cover considerations
Care should be taken to ensure that the correct sum insured is implemented. Sometimes small benefit levels are selected (this is often the case when included within an office policy), but these may at a level insufficient to cover legal defence costs.
An historic benchmarking protocol for selecting trustee liability was 10% of the annual turnover of the charity. Ideally a minimum limit of GBP1m of cover could be considered worthwhile. You can select a lower limit to provide some cover, but the trustees should probably be focussing on the output of the policy, not the premium being paid. There is no hard and fast rule for this, but insurers tend to consider charities in specific areas as carrying a lower risk. Similarly, smaller charities tend to need a lower limit than larger international charities.
You may need to ensure that any trustees based overseas are included by the cover you select or if not then cover is arranged for them locally. Often trustee products can include these overseas trustee’s, but any action needs to be bought within the UK for cover to be operative.
Trustee products generally include the following additional covers (some-times referred to as Management Liability covers).
- Corporate liability – refers to a charity’s’ legal responsibility for criminal activities, types of claims here could include prosecution following a workplace accident, pollution or a copyright infringement.
- Employment Practices – liability protects against employment-related legal action. Commonly, these types of claims are brought by current or former employees where their rights have been violated.
How much does Trustee cover cost?
There are several factors which determine the price of your premium – the principal factor being the indemnity limit on your policy. Other aspects include annual turnover and the size of the charity. Organisations operating abroad will need an international programme of insurance which can deal with claims made from other countries, which tends to increase the premium. Other factors include the claims history, with higher premiums typical for charities that have a history of employment-related claims.
Claims may emerge years after the event in question took place. Whether that is a breach of environmental law, a case of sexual harassment or a manager making a misjudged decision, charities and their trustees remain potentially liable even years after projects have concluded or individuals have retired.
It is therefore a good idea to consider extending your cover to include a run-off period. Typically, insurers in the UK can offer a run-off period of up to six years.