What is trustee indemnity insurance?
Reputable and committed trustees are vitally important to charities and community groups. However, it is important to recognise that trustees of even small charities bear considerable responsibility.
After all, both their actions and the actions of the organisation they represent can reflect on them personally. This is where trustee indemnity insurance comes in.
In this blog we take an in-depth look at trustee indemnity insurance. We explain how these policies work and why it can be important for charities and community groups to be covered.
What is trustee indemnity insurance?
Trustee indemnity insurance is designed to financially protect trustees or board members. Unlike other charity-specific insurance, these policies cover individuals in positions of authority if a legal claim is made against them.
Claims of this nature can be financially crippling to defend, which is why trustee indemnity insurance is so important. It covers the legal costs and expenses of defending against disqualification as a trustee, investigations or extradition proceedings. Without trustee indemnity insurance in place, the trustee themselves may have to pay the costs to defend the claim out of their own personal wealth. This can be financially devastating.
What sort of claims does trustee indemnity insurance cover?
Trustee indemnity insurance prevents trustees having to pay their own legal costs should a claim be made against them. This could be a claim made by the charity itself or by a third party. Additionally, these policies cover breaches of trust and claims of negligence made against a trustee. Even if a trustee has the best intentions, it is still possible to make errors of judgment that can lead to investigations and legal proceedings. For this reason, this cover can be essential.
The types of claims trustee indemnity insurance cover against include:
- Claim for alleged misuse of trust funds/finances
- Claim for alleged breach of health and safety regulations
- Claim for alleged breach of trust
- Claim for alleged breach of authority
- Claim for alleged unfair dismissal
- Claim for alleged discrimination
- Claim for alleged defamation
- Claim for alleged denial of access
Trustee indemnity insurance cover - case study
Some time ago, a large sports club ran into financial difficulties and approached the trustees of the club's charitable trust for help. This trust was created to raise money to help young fans to take part in the sport. Subsequently, the trustees felt they had no choice but to help the club avoid financial ruin and handed over a large quantity of money to the club. Unfortunately, as funding the parent club was not the purpose of the trust, an investigation by the Charity Commission followed. It focused on the erroneous actions of individual trustees rather than on the charity itself.
Without trustee indemnity insurance, the trustees themselves would be liable for all legal costs. Additionally, the trustees could be held responsible for more than simply financial irregularities. For example, if the trustees issued a press statement that contained libellous comments. Any legal proceedings arising as a result would be directed at the trustees rather than the charity. Again, this can lead to substantial legal costs for individual trustees. Trustee indemnity insurance would cover these costs in this type of scenario.
Why is trustee indemnity insurance important?
Being a trustee or board member within a charity is a big responsibility. Even when everything is going to plan, there can still be a lot of pressure. However, this responsibility is even greater when you consider that these individuals can be held personally and financially responsible if a claim is made against the organisation or the board.
Trustee indemnity insurance can be of great value because it protects trustees. Should legal action be taken against the charity or board member, individuals are covered. This helps to reassure individuals, meaning the best candidates are not deterred from taking on these vital roles.
How much does trustee indemnity insurance cost?
As with any form of insurance, costs can vary greatly. This can depend on the size of your charity, the amount you want trustees to be covered for, and your insurance provider. At Markel Direct we offer trustee indemnity insurance, starting from £3 a month*.
Arranging trustee indemnity insurance that works for you
Financial irregularities or breaches within your charity's activities may be unthinkable. But the truth is, as the example above shows, it is possible for trustees to make bad decisions even when their intentions are good.
For this reason, charities should consider entity cover as well as trustee indemnity insurance. While trustee indemnity insurance covers individual trustees, entity cover covers the charity itself. This can protect against a range of scenarios. For example, external investigations, breach of contract and allegations of corporate manslaughter.
Minimising the damage with public relations crisis management
Allegations of mismanagement by trustees can stir interest amongst the press and other media outlets. Typically, few trustees have the necessary experience to handle such difficult situations. As a result, there is the potential for trustees' livelihoods to be put at risk from the negative attention.
That's why Markel include a public relations crisis management service as part of trustee indemnity insurance. As soon as allegations pose a threat to a trustee's livelihood, we instruct an experienced PR specialist to deal with the media on your behalf. This helps to limit the damage to the trustee (and the charity's) reputation.
Trustee indemnity insurance gives protection and peace of mind to the trustees of all sorts of charities and other organisations. For this reason, it should always be considered as part of your charity insurance policy. We offer trustee indemnity insurance from £3 a month*. Get a quote now or call us on 0800 640 6604 to speak to one of our charity insurance experts.
*The £3 a month premium example is based on a charity with an income under £10,000 and a £250,000 level of cover for professional indemnity and trustees’ liability insurance.
Sources:
https://www.thirdsector.co.uk/charity-doing-enough-protect-its-trustees/article/1415484