Trustee liability

In cases where trustees incur liabilities (i.e. debts or financial obligations), these are generally met out of the charity’s resources. However, if trustees act imprudently or in breach of the law or the governing document trustees may be personally responsible for liabilities incurred by the charity, or for making good any loss to the charity. Trustees may also face personal liability for the charity’s debts if it is unincorporated.
Trustees can purchase indemnity insurance to cover liabilities arising out of certain situations. The Charities Act 2006 introduced a power to buy trustee indemnity insurance using charity funds, even if there is no power contained in the governing document, without prior permission from the Charity Commission, if the trustees decide it is in the best interests of the charity.  The statutory power will not apply if governing documents expressly prohibits the purchase of such insurance out of charitable funds.
While trustee indemnity insurance may provide peace of mind to trustees, it is for trustees to decide whether it provides any added protection. Such insurance does not cover the cost of fines or penalties incurred as a result of trustees’ inaction, for instance.