With large numbers of Baby Boomers now retiring, many may want to give back to their community and stay active by serving as a volunteer board member of a local charity. They may not realize, however, that their commendable behavior exposes them to the risk of being sued. Board members can be held personally liable for the actions or inactions of the charitable organization, even if the board member is unpaid. In an ACE survey of households with at least $5 million in investable assets, 44% of those who were serving or had served as a volunteer board member did not have proper coverage in place.
Considering the increased need to protect assets when entering retirement, wealth advisors have an opportunity to strengthen their client relationships and broaden their range of advice by discussing this liability risk with their clients and then suggesting a quick review of their coverage by an insurance agent.
Just what can clients be sued for? Most often, lawsuits arise out of wrongful employment practices, such as sexual harassment, discrimination and wrongful termination. Although a board member may not have been the one who carried out these actions, individuals on the board can still be held accountable for not having the proper training programs in place to prevent such actions, or for not having a complaint process to address a problem in its earliest stages.
Due to the explosion of social media, lawsuits claiming libel, slander, invasion of privacy, plagiarism and copyright or trademark infringement present a rapidly escalating threat. Successful charities often thrive on networking and getting the good word out about their efforts, and social media has greatly increased the ease, reach and speed of disseminating news. But under the pressure to constantly produce content, internal review procedures often suffer just as the temptation to copy-and-paste or offer a hastily conceived opinion grows. In one case, $11.3 million was awarded to a consultant against an individual for posting defamatory comments on an Internet bullet board. Had that individual been working for a charity and offered comments in connection with his or her employment, the board members could have been targeted as well.
Nearly half of volunteer board members leave themselves exposed to these risks because they think the charitable organization will provide insurance protection for them, according to the ACE survey. Most organizations do. But charities typically operate on tight budgets and may not purchase enough insurance to guard against worst-case scenarios. They may have only $1 million in director’s & officer’s liability insurance to cover the entire board. With some suits far exceeding that amount, plaintiff lawyers will then try to recover damages from additional sources, including the personal assets of the board members.
According to the ACE survey, another 20% of volunteer board members recognize they may have some liability exposure, but they do nothing about it because they aren’t aware that a solution exists. It does, and it’s called charitable director’s and officer’s liability coverage. Insurance companies such as ACE that specialize in serving high-net-worth families typically offer this coverage as an option within or in conjunction with an umbrella liability policy. The cost can be surprisingly affordable—perhaps $500 for $1 million in coverage. It provides an additional level of protection for claims made during the policy period. After leaving the board, the client may want to continue the coverage for a few years in case a claim is brought against the organization for an incident that occurred on his or her watch.
Volunteer board members also should make sure their basic umbrella liability coverage is adequate. Charitable director’s & officer’s coverage protects against employment practices lawsuits, but bodily injury lawsuits would typically be covered under the client’s homeowners policy and then, if damages exceed $300,000 to $500,000, the umbrella policy.
How costly could a bodily injury lawsuit be? Imagine that the organization runs a day care facility for disadvantaged kids and a child allergic to peanuts ingests a food that causes a serious reaction. The child stops breathing and suffers permanent brain damage before he can be revived. Damages for negligent supervision could reach into the tens of millions of dollars.
With these risks in mind, our agents often recommend purchasing enough umbrella liability coverage to match personal net worth as well as the present value of a future income stream. Like charitable director’s & officer’s coverage, the cost is often very affordable. It’s usually only a few hundred dollars per million dollars in coverage, and the cost-per-million declines as the amount of coverage increases.
While there are many risks to consider when volunteering as a board member, the insurance solution need not be complicated or costly. Once you know that a client serves on the board of a charity, the most practical step is to encourage the client to ask an expert agent or broker to review both the client’s and organization’s insurance plans. The agent can then advise where additional coverage may be required.