Charities
are increasingly being asked to be risk-aware and to undertake
risk management, while under SORP they have to report their
risk management policies. Unfortunately, while being risk-aware
should not make organisations risk averse, there is a real
concern that this is happening; schools cancelling educational
trips out of concern of being sued is a good example of how
fear is crippling sensible behaviour.
However, a recent case in the House of Lords was a step in
the right direction. It held that the British Legion was not
liable for an injury caused by a person tripping on a hole
left after a May Pole had been erected on a village green
for a fundraising event: the British Legion had done their
best to fill it in.
Insurance developed as a sensible way of managing risk by
spreading it, initially among a syndicate of backers –
assembled in my namesake’s famous coffee house –
and insurance remains that to this day.
One sensible approach to risk is to evaluate the key areas
of concern an organisation faces and work out which of these
can be addressed by insurance. If they do this, most organisations
will come up with a long shopping list that could be very
expensive. So, as ever, the sensible approach is to take a
proportionate view and work out the high risks and the low
risks and, effectively, self-insure the low ones.
And, of course, just because you have an insurance policy
does not mean you can act recklessly: far from it. Insurance
law brings with it an obligation on the insured to act with
utmost good faith which, in modern terms, means acting transparently
and with due care.
To have and have not
There are some types of insurance you have to have –
they are compulsory. Road Traffic Act insurance, in respect
of liabilities to third parties from use of a motor vehicle,
and employer’s liability to cover liability for death
or bodily injury at places of work.
Don’t be confused by the requirement for a health
and safety policy to be in place only where the organisation
exceeds the minimum threshold of five employees. This is
quite distinct from the requirement for an organisation
to have employer’s liability insurance even where
a single employee exists. And if there are no employees,
in as much as the entity is run by a single person, then
that person may still be regarded as an employee if, for
example, they report to a management committee.
Solicitors have to have professional indemnity insurance.
Sometimes contracts impose an obligation to have insurance.
Many service level agreements require a provider to have
public liability insurance. And then there are a range of
policies which are optional but that any prudent business
will take out: public liability; office contents; professional
indemnity; fidelity.
If your staff travels abroad you will need medical expenses
cover. Your trustees may well want trustees’ indemnity
insurance cover – certainly in the commercial world
most directors insist on the company taking out directors’
and officers’ (D and O) liability cover.
So what happens if you do not have insurance – or
have inadequate insurance – or you breach the terms
of the policy so the cover is not there? Inevitably, it
depends on the facts.
One example of this concerns a charity which owned meadowland
to which the public had access, as it was a public common.
It had £1 million public liability cover. One hot
day a 13-year-old boy dove off the bank into the river which
flowed past. He had not checked the depth, which was only
six inches, and he ended up a paraplegic. He subsequently
claimed £6 million in damages, which would have made
the charity bankrupt if he had won his case.
They managed to settle out of court within their limit of
indemnity, but it was a close-run thing. I suspect a number
of charities have inadequate levels of indemnity on public
liability cover. What was even scarier in the above example
was that until about a year before the incident the charity
had been unincorporated. In other words, if a successful
claim had been more than the charity’s assets the
trustees would have been personally liable.
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In another case, a charity was challenged by the Charity
Commission for having lent £250,000 to its trading
company, which ended up having to be written off. The Commission
argued that the trustees had been personally negligent and
should reimburse the charity out of their own pockets. The
trustees had to take independent legal advice, which was
not cheap as the case dragged on for over two years. As
the charity did not have trustees’ indemnity insurance,
the trustees were forced to pay for this themselves.
There are an increasing number of HM Inland Revenue and
Customs investigations into charities and a number of them
raise questions as to whether the trustees acted properly
– in which case trustees may need to take independent
legal advice and will obviously not want to pay for this
themselves.
The Office of Fair Trading has recently investigated a number
of independent schools for breach of the price fixing rules
in the Competition Act, and the trustees in these cases
may well need to take independent legal advice about their
personal position and liabilities.
Another area of increased claims is around employee fraud.
So called fidelity insurance – a real misnomer as
it means insurance against lack of fidelity – protects
the employer against the costs involved in seeking recovery
of funds stolen as well as the loss itself. The lack of
such a policy can be a real hindrance to a charity trying
to deal with the consequences of fraud.
Increasingly charities are providing services under contract
– they therefore are also exposing themselves to potential
claims for breach of contract and thus they need to consider
if it is appropriate to manage this risk by professional
indemnity insurance.
And then there is the whole question of what to do about
volunteers and insurance. Employer’s liability insurance
is compulsory. This covers an employer’s liability
to his employees for death or bodily injury sustained while
engaged in working for the employer. Hence it covers injuries
sustained both at a place of work and through work (e.g.
when travelling as part of the job). Note that it is not
compulsory to insure against damage to the employee’s
property, although obviously it is prudent to do so.
Volunteers are not employees, although sometimes the distinction
between the two gets blurred to the point of non-existence.
You need to be very clear in terms of how you treat volunteers
to make sure that they are, indeed, treated as volunteers
and not as employees – because if you give them benefits
over and above reimbursing expenses, then they may be able
to claim, in fact, that they are employees. And if that
is the case, you will find they can claim the minimum wage,
have employment protection rights and, of course, should
be covered by your employer’s liability policy.
If your volunteers are just that, i.e. volunteers, what
should you do about their insurance? I recommend that you
extend your employer’s liability policy to cover not
only employees but also all volunteers. Try to avoid naming
the volunteers on the policy, as they will be a shifting,
changing group. Better still, when you declare the total
number of volunteers you use over the year, give an estimate
also of the full-time equivalent number to which that total
equates so that insurers are as well briefed as possible
as to the real amount of time served by volunteers.
In terms of the cost implications of extending your insurance
cover in this way, the increase should not be too great
and whatever the cost, within reason, is much better than
running the risk of exposure to uninsured claims for death
or bodily injury. Do bear in mind that personal injury cases
can result in huge awards of damages, particularly where
the injured person is left in need of 24 hour a day nursing
care for many years.
Any well run charity should regularly review its insurance
policies as part of its risk strategy. One area which is
especially critical is keeping tabs on the fundraisers who,
in my experience, often come up with brilliant new methods
of raising money but which are not always disclosed to the
charity’s insurers – and some of these may involve
both high risk and volunteers.
Stephen Lloyd is chairman of CaSEInsurance
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