Here’s how to limit your liability on a volunteer board
By Kevin DiPetrillo, Partner, PointeNorth Insurance Group
Your kid plays a sport, and you’ve been asked to step in as the treasurer for the league. Your first thought probably wasn’t about lawsuits, but you’ve seen the parents on the sidelines, right? Most volunteers don’t consider the personal liability associated with helping out, and that’s exactly why it’s worth a few minutes of consideration before you say yes.
Those who volunteer to serve on a board (a neighborhood HOA, PTA, or a nonprofit) should keep solid risk management practices in mind so that good intent doesn’t lead to catastrophic consequences for them and their family.
The commonly missed first step
The first step in risk management is not to buy insurance. It’s to reduce risk. You can reduce the risk of your volunteer board position through a few steps:
- Only volunteer for a position that aligns with your skills, experience, and expertise. You’re less likely to make a mistake if you’re operating in an area with which you’re familiar.
- Ask questions about who handles the money. Many liability suits surrounding board members are linked to misallocation of funds and breach of fiduciary duty. You want strong financial controls in place, including multiple signers of checks and bank reconciliation by someone other than the treasurer.
- Inquire about the governing documents and whether they’re followed. Also ask if the governing documents include Indemnification language in favor of the board members. An organization with poor governance exposes the board members to personal liability.
- Consider the structure of the organization you’re volunteering for. A formal corporate entity that’s in good standing with regulators, including the IRS, will create more of a personal liability shield for volunteer board members than an informal organization or group.
- Confirm the organization is adequately insured for its operations, including special events and fundraisers.
There are federal and state laws that limit liability for volunteer board members and extend immunity for certain actions under certain circumstances, but there are limits to these laws, and you can only claim immunity once you’ve been sued. That means you’ll need an attorney, which is where insurance comes in.
What are the insurance solutions?
If you’re serving on the board of a smaller local organization, it’s possible that your homeowners insurance may offer an endorsement extending your liability coverage to your board service. Your personal insurance agent should be your first call. For others, a Directors & Officers Liability insurance policy (D&O) is the best tool for the job. D&O is purchased by the organization you’re volunteering for, and it protects the individual board members from certain liabilities associated with their actions as board members. D&O also offers important protection for the organization, including defense against:
- Allegations of misuse or misallocation of donated funds, such as a donor alleging their gift was used for the wrong cause.
- Breach of fiduciary duty.
- Discrimination in services or membership.
- Disputes with vendors or partners.
- Wrongful denial of services such as a potential beneficiary claiming they were unfairly refused program benefits or services, or, to take us back to your sports league, when a parent sues because their child was denied a spot on the elite team.
Most D&O policies include these types of circumstances and more. So, the policy provides valuable coverage for the individual board members, but also valuable coverage for the organization itself. All policies are different so you should have a conversation with your agent about your concerns and what you want covered.
As you prepare to take your next volunteer role, keep this information in mind. Don’t let your desire to help create a liability exposure for your family. Take the time to make sure the right practices and policies are in place. Consult with your personal insurance agent, then have conversations with the organization’s insurance broker to make sure the right coverage is in place. Then, follow your passion, and do some good in the world. It’s the season for it, after all.
KEVIN DIPETRILLO is a Partner at PointeNorth Insurance Group. With a degree in Risk Management from The University of Georgia, he has been helping businesses and High Net Worth households with their insurance needs for 25 years. Visit pointenorthins.com to see how the company can serve your needs.
