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August 23, 2016

Do you need Trustee Indemnity Insurance?

Charitable Incorporated Organisations (CIO) are sometimes unsure about whether they need Trustee Indemnity Insurance so we hope this document helps trustees make an informed decision.

It has been suggested that incorporation (either of the Charity or the Trustees themselves) will limit trustee’s personal liability. This is NOT necessarily the case and indeed incorporation imposes some additional duties and liabilities.

All charity trustees are, in principle, vulnerable to claims instigated by the Charity Commission or the Attorney General (or your fellow trustees) in the case of a breach of trust or duty. These claims are not affected by the legal form of the charity.

The legal obligations of trustees are generally as onerous as those of a director of a company. The Charities Act of 1992 & 1993 have highlighted these responsibilities and emphasised the personal liability of trustees and their need to take an active role in the management and control of the Charity. They can be held personally liable – jointly and severally for any loss falling upon the Charity (and therefore upon those who are entitled to benefit from it) as a result of their own errors or omissions or those of their fellow trustees, employees or agents.

There is no legal requirement to purchase Trustee Indemnity. Depending on the charity’s constitution, it may be able to limit the liability of trustees – this is helpful for individuals in protecting their personal assets. In fact, the charity may also commit to indemnifying trustees using the charity’s funds, reserves and assets. Either way, trustees need to consider whether it is sensible to risk or deplete charity resources in this way. If the Trustee Indemnity policy is properly arranged it will protect both the organisation and the individuals.  

Regardless of the legal status of the Charity, the principal benefit of the Insurance cover as with most liability policies is the fact that the cover includes Legal Defence costs. Just because someone accuses you of wrongdoing doesn’t necessarily make it a fact and some investigation will be needed to establish the facts of the case. The costs incurred can be substantial even if you can prove that there was no case to answer.

Insurers have extensive experience, and can call upon expert advice to protect and assist trustees when claims or investigations arise. They are therefore a useful support mechanism and insurers will often take over the running of the claim leaving staff and trustees free to get on with their work (and of course, their day-to-day jobs).

Trustee Indemnity meets costs involved not just in cases of wrongful acts, but also of ‘investigations’ – e.g. by the Charity Commission and the HMRC.

It is also possible to take extensions to protect spouses and retired or former trustees.

Cover is relatively inexpensive, so the decision is about taking sensible steps to ensure that the trustees have in place a mechanism for dealing with the unexpected or unaffordable.

Cover is available on its own or in combination with your other insurance requirements.

Kingdom Bank Limited specialises in the church and charity sectors and will be happy to discuss your insurance requirements and provide quotations from our panel of insurers. Click here to submit an Online Enquiry or call us on 0115 9217250.

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