Trustee Indemnity Insurance
Trustee Indemnity Insurance
Trustee indemnity insurance covers trustees from having to personally pay legal claims that are made against them (by their charity or by a third party), for a breach of trust, or a breach of duty or negligence committed by them in their capacity as trustees.
The main difference between Trustee Indemnity Insurance and other types of insurance taken out for the benefit of the charity is that Trustee Indemnity Insurance directly protects an individual trustee, rather than the charity itself. For that reason, Trustee Indemnity Insurance is regarded as a form of personal benefit to a trustee and a charity will need a proper legal authority before it can buy it using its own funds.
Many charities have long had this type of authority in their governing documents, but if not, s.189 of the Charities Act now provides a general power to buy Trustee Indemnity Insurance using charity funds. The cost must be reasonable and trustees must be sure that Trustee Indemnity Insurance is in the best interests of their charity.
Trustees are free to buy Trustee Indemnity Insurance out of their own pockets if they wish – this would not require any legal authority.
This means that the only time a charity needs to approach the Commission for authority to buy Trustee Indemnity Insurance is when the charity’s governing document explicitly forbids its purchase and this is extremely rare. The statutory power to take out Trustee Indemnity Insurance is not excluded by a general prohibition on trustees benefiting from the charity.
Charity trustees can buy Trustee Indemnity Insurance to cover them against any personal liability in respect of:
(a) any breach of trust or breach of duty committed by them in their capacity as charity trustees or trustees for the charity, or
(b) any negligence, default, breach of duty or breach of trust committed by them while acting as directors or officers of the charity (if it is a body corporate) or of any body corporate carrying on any activities on behalf of the charity.
The terms of such insurance must, however, be so framed as to exclude the provision of any indemnity for a person in respect of:
(a) any liability incurred by him or her to pay:
- a fine imposed in criminal proceedings, or
- a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising)
(b) any liability incurred by him or her in defending any criminal proceedings in which he or she is convicted of an offence arising out of any fraud or dishonesty, or wilful or reckless misconduct, by him or her; or
(c) any liability incurred by him or her to the charity that arises out of any conduct which he or she knew (or must reasonably be assumed to have known) was not in the interests of the charity or in the case of which he or she did not care whether it was in the best interests of the charity or not
Where charity trustees have acted honestly and reasonably, they are in any event entitled to an indemnity from the charity’s assets for any liabilities incurred by them as trustees. Insurance of such liabilities will benefit the charity rather than the trustees, although it will also ensure trustees are covered even if the charity does not have sufficient assets to provide the indemnity.
If the charity is a company, or carries out a part of its business through a separate company, the trustees’ personal liability for any wrongful acts as company directors or officers (including liability for wrongful trading) is similarly covered to the extent it does not fall within (c) above.
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