This year, we’re inviting a handful of our most trusted colleagues to share their ideas and expertise on topics of interest to our clients. For this blog, we’re happy to introduce you to Randy Koeneke. Randy is Managing Partner at Sierra Republic Insurance Solutions, a specialty property & casualty commercial insurance agency with a focus on non-profit and social services risk.
One of the most meaningful actions we can take is to volunteer our talents in charitable service, helping improve the communities around us all. Serving on the Board of Directors of a non-profit organization is a critically impactful way to make a difference, as all organizations benefit from top-level guidance in the execution of their mission.
However, many people hesitate to serve on a Board because of the perception that doing so will put their personal assets in jeopardy. Given that lawsuits can name Board members individually and thereby hold kind-hearted individuals personally liable for damages, many find themselves thinking twice before accepting that exposure, especially here in California—the land of Disney, beaches, and litigation.
If this hesitation describes you, I’d like to strongly encourage you to reconsider. Your personal risk can have water-tight protection when volunteering on a Board of Directors through a broad range of tools shielding you from harm.
Protection Under the Law
You may be comforted to know that both Federal and state laws protect you as a volunteer Board member. At the Federal level, Congress has enacted the Volunteer Protection Act of 1997 which states “no volunteer of a nonprofit organization… shall be liable for harm caused by an act or omission” provided certain criteria are met (more on those criteria, below).
At the state level, California has enacted similar personal liability protections outlined in three separate sections of the California Corporations Code: Sections 5231, 5047.5, and 5239.
These protections are of course not unlimited. You won’t be protected from malicious actions. You can’t engage in criminal acts. You can’t self-deal. And, you can’t be indifferent to the safety and rights of the public. The laws, in short, won’t shield you from actions of stupidity.
But if you are instead executing your responsibilities in good faith and in a manner that you believe to be in the best interests of the organization you serve, this body of law exonerates you from the threat of personal liability. These protections serve as part of your incentive to serve for a greater good.
I mentioned that the laws stipulate criteria which must be met in order to trigger the personal protection response for you. Many of these are common-sense. For example, you must be acting within the scope of your responsibility and making decisions appropriate to your role as a director.
Protection Under Organizational Insurance
However, it’s worth noting that a key criteria involves insurance. The organization must provide its own source of financial recovery that will respond to damages in your stead. Put another way, the nonprofit organization must carry appropriate insurance which, when designed to meet the criteria outlined by the laws, protects you both functionally and legally.
This requirement of insurance has some moving parts and should be analyzed on an organization-by-organization basis to ensure appropriate coverage. For example, the following types of insurance are stipulated and should be discussed:
- General Liability (responds primarily to damages of bodily injury) interacts with…
- Directors & Officers (responds broadly to allegations of financial damages that result from the organization’s procedures) which connects to…
- Employment Practices Liability (responds to alleged violations of employment law).
Likewise, the amount of insurance required is stipulated by the laws and should be determined case-by-case (the levels of required coverage limits scale to the size of the nonprofit organization). This is definitely territory to discuss with an experienced insurance consultant!
The point here is to emphasize the double-layer protection afforded to you as a volunteer Board Member. The insurance carried by the organization of course protects itself as the insured party, but having the insurance also helps unlock your own legal personal liability protections as afforded through the Federal Volunteer Protection Act of 1997 and California’s Corporate code.
Protection Under Personal Insurance
Combining that dual protection—organizational level insurance plus personal liability protection laws—with your own Personal Liability insurance (also known as an umbrella insurance policy), along with common sense to follow Board-level best-practice risk management processes (for example, documentation of Board Minutes), provides you a robust, multi-layer liability shield, protecting you from even the most sideways of circumstance.
So, by all means, volunteer! Serve on a Board! Improve the world! You’ll be well-protected and rest assured, all your good deeds shall truly go unpunished.
Randy follows a defined liability-management process to help identify, prioritize, and mitigate the most pressing risks facing his clients’ organizations. He is accredited as an Associate of Risk Management (ARM) and is certified as both a Management-Liability Specialist (MLIS) and Cyber-Risk Manager (CRM).
Inspired Financial empowers clients – primarily women and families – to feel comfortable managing their financial lives, especially during and after times of significant change. We stand with and educate clients during all life stages, instilling in them financial peace of mind, and allowing them to live a simple and elegant life. Caring for clients as if they were family – that’s what Inspired Financial advice is all about.