Why is trustee indemnity insurance important for your charity or community group?

_ PolicyBee_

They’re the guiding hand. The guardian angels. The custodians of the organisation.

From helping to protect our natural world to helping their communities, trustees and key figures in the charity sector work tirelessly for the greater good.

But what happens when a charity is faced with a legal challenge?

No matter how big or small your not-for-profit is, it’s a good idea to protect your trustees and anyone else who is making decisions about the way you run. If you don’t, they could end up carrying the can if a complaint of wrongdoing against your organisation is upheld.

With at least 700,000 trustees in England and Wales alone, it’s important that not-for-profits and their trustees are aware of the risks they face.

If the worst happens and there’s a claim against your charity, your trustees and other important members could be held liable for any mistakes made – despite the good intentions. And that means their personal finances are on the line.

Image used under license from Shutterstock.

What is trustee indemnity insurance?

If your charity or group is accused of wrongdoing or negligence, trustee indemnity insurance pays for legal representation and compensation costs for those in the firing line.

It may be a bitter pill to swallow, but even the best-run organisations can come under scrutiny. There are two ways you can buy trustee indemnity insurance. The Charities Act says not-for-profits are allowed to pay for trustee insurance out of their own funds. This can cover all trustees and important officers of your charity or group.

Or, a trustee can take out their own insurance. It’s a good route to go if they’re involved in multiple organisations and covers them across the board.

Who counts as a trustee?

Good question. Because it’s not just trustees who need trustee insurance. In simple terms, anyone who bears legal responsibility for a not-for-profit counts.

Directors, governors, committee members, officers - whatever you call them, if they’re making key decisions within the organisation, they can and should be covered by insurance.

Trustees are responsible for ensuring the charity is running correctly. Any allegations that arise will be their responsibility too. Much like a normal company director.

What risks do trustees face?

From misuse of funds to defamation, there are all kinds of things your charity can be sued for. Even if you’re not at fault, it can still end up damaging your reputation and costing huge amounts of money.

Here are some of the most common claims brought against charities:

  • Misuse of funds is one of the most common allegations made against charities. If you spend even just a small amount of money on something when you promised you’d spend it on something else, it could spell trouble.