Some boards decide to put director/trustees’ liability insurance in place to protect individual board members from personal liability. However, this is not always considered to be cost effective for organisations with an incorporated structure because there are relatively few circumstances in which the insurance will provide cover where the limited liability will not. If board members have not acted with the requisite care, diligence and skill, no insurance will protect them.
Directors’ liability insurance can include cover against vexatious litigation directed at individual board members which can be beneficial even in an organisation with limited liability.
Since this type of cover benefits the organisation’s board members, the constitution should be reviewed to check to see if it is specifically authorised or forbidden. Most charities have authority in their governing documents, but if not, s.189 of the Charities Act now provides a general power to buy cover using charity funds. The cost must be reasonable and trustees must be sure that cover is in the best interests of their charity.