NONPROFIT LIABILITY: OUTLINE OF RISKS & PROTECTIONS
- Statutory Charitable Immunity.
- General Corporate Protection.
- Statutory Immunity of Voluntary Officers and Directors.
- Indemnification of Officers, Directors and Others.
- Placing Liability Risk on Others Through Contractual Representations, Indemnifications, Releases, and Waivers.
- Disclaiming Liability.
- Overall Risk Management.
- Statutory Charitable Immunity
It shall not constitute a defense to any cause of action based on tort brought against a corporation, trustees of a trust, or members of an association that said corporation, trust, or association is or at the time the cause of action arose was a charity; provided, that if the tort was committed in the course of any activity carried on to accomplish directly the charitable purposes of such corporation, trust, or association, liability in any such cause of action shall not exceed the sum of twenty thousand dollars exclusive of interest and costs; and provided further, that in the context of medical malpractice claims against a nonprofit organization providing health care, such cause of action shall not exceed the sum of $100,000, exclusive of interest and costs. Notwithstanding any other provision of this section, the liability of charitable corporations, the trustees of charitable trusts, and the members of charitable associations shall not be subject to the limitations set forth in this section if the tort was committed in the course of activities primarily commercial in character even though carried on to obtain revenue to be used for charitable purposes.
No person who serves as a director, officer or trustee of an educational institution which is, or at the time the cause of action arose was, a charitable organization, qualified as a tax-exempt organization under 26 U.S.C. §501(c)(3) and who is not compensated for such services, except for reimbursement of out of pocket expenses, shall be liable solely by reason of such services as a director, officer or trustee for any act or omission resulting in damage or injury to another, if such person was acting in good faith and within the scope of his official functions and duties, unless such damage or injury was caused by willful or wanton misconduct. The limitations on liability provided by this section shall not apply to any cause or action arising out of said person's operation of a motor vehicle.
- General Corporate Protection
Limited liability is the key to the corporate form. The corporation itself, rather than the individuals involved with the corporation, absorb most liabilities incurred by the corporation. Therefore, as a nonprofit director, officer, or manager personal assets are at a lower level of risk with corporate protection.
Courts have become more willing to "pierce the corporate shield" and assign personal liability, particularly in instances involving gross negligence. However, the corporate entity continues to offer a layer of protection, particularly when combined with other protective measures such as the inclusion of good indemnity and liability provisions in organizing documents, reasonable liability insurance, and clearly defined board and staff responsibilities.
- Statutory Immunity of Voluntary Officers and Directors
Except as provided otherwise in this section and in section eighty-five V, no person who serves without compensation, other than reimbursement for actual expenses, as an officer, director or trustee of any nonprofit charitable organization including those corporations qualified under 26 U.S.C. § 501(c)(3) shall be liable for any civil damages as a result of any acts or omissions relating solely to the performance of his duties as an officer, director or trustee; provided, however, that the immunity conferred by this section shall not apply to any acts or omissions intentionally designed to harm or to any grossly negligent acts or omissions which result in harm to the person. Nothing in this section shall be construed as affecting or modifying any existing legal basis for determining the liability, or any defense thereto, of any person not covered by the immunity conferred by this section.
Nothing in this section shall be construed as affecting or modifying the liability of any person subject to this section for acts or omissions which are committed in the course of activities primarily commercial in nature even though carried on to obtain revenue to be used for charitable purposes, nor for any cause of action arising out of such person's operation of an automobile.
- Indemnification of Officers, Directors and Others
Sample Articles of Organization and Bylaw Indemnification Provision:
The corporation shall, to the extent legally permissible, indemnify each person who may serve or who has served at any time as an officer, director, or employee of the corporation against all expenses and liabilities, including, without limitation, counsel fees, judgments, fines, excise taxes, penalties and settlement payments, reasonably incurred by or imposed upon such person in connection with any threatened, pending or completed action, suit or proceeding in which he or she may become involved by reason of his or her service in such capacity; provided that no indemnification shall be provided for any such person with respect to any matter as to which he or she shall have been finally adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such action was in the best interests of the corporation; and further provided that any compromise or settlement payment shall be approved by a majority vote of a quorum of directors who are not at that time parties to the proceeding.
The indemnification provided hereunder shall inure to the benefit of the heirs, executors and administrators of persons entitled to indemnification hereunder. The right of indemnification under this Article shall be in addition to and not exclusive of all other rights to which any person may be entitled.
No amendment or repeal of the provisions of this Article which adversely affects the right of an indemnified person under this Article shall apply to such person with respect to those acts or omissions which occurred at any time prior to such amendment or repeal, unless such amendment or repeal was voted by or was made with the written consent of such indemnified person.
This Article constitutes a contract between the corporation and the indemnified officers, directors, and employees. No amendment or repeal of the provisions of this Article which adversely affects the right of an indemnified officer, director, or employee under this Article shall apply to such officer, director, or employee with respect to those acts or omissions which occurred at any time prior to such amendment or repeal.
Common Types of Insurance Coverage:
- General liability insurance.
- Directors and officers insurance.
- Property and building insurance.
- "Wrap-around", "umbrella" or excess liability insurance to ensure there are no gaps in coverage. Such coverage may include flood, environmental contamination, sudden and accidental pollution, hazardous substance, brownsfield, garagekeepers legal liability, rental or business interruption, and title and survey insurance
- Placing Liability Risk on Others Through Contractual Representations, Indemnifications, Releases, and Waivers
- Simple Representations and Indemnity Provision for Use in Contracts:
Contractor represents and warrants that it has the legal right and authority to enter into this agreement and that its performance will not conflict with or violate any commitment, agreement, or understanding it has to or with any other person or entity.
Contractor shall indemnify and hold the Organization harmless from and against all claims, losses, expenses and costs damages, and liabilities (including reasonable attorneys' fees and amounts paid in settlement of any claim), brought, claimed or rendered against the Organization arising out of or in connection with Contractor's performance of its services under this Agreement, or resulting in any way from any negligent act or omission on the part of the Contractor or resulting directly or indirectly from the Contractor's breach of any representation, warranty, or failure to perform or observe any of the obligations hereunder, including but not limited to...
- Simple Insurance Certification Provision for Use in Contracts:
The Contractor agrees to maintain and keep in force [general liability, professional liability, comprehensive, umbrella, etc.] insurance coverage in the amount of...... The Contractor also agrees to maintain and keep in force motor vehicle liability insurance for each vehicle used to provide delivery services under this Agreement in the following amounts: $ / $ for personal injury; $ for automobile damage; and $ for property damage. The Contractor also agrees to maintain and keep in force such other insurance as is necessary to satisfy the indemnification terms under this Agreement as set forth in Paragraph xx below. The Contractor shall submit copies of the policies to the Organization evidencing that the required insurance is in full force and effect before this Agreement may become effective. Failure of the Contractor to provide and continue in force such insurance shall be deemed a material breach of the contract and shall operate as an immediate termination thereof.
- Simple Model Release for Participants in Organization's Programs:
I authorize the Organization, Inc., to [photograph/record my voice/prepare recordings of my participation in ...] The Organization may use such recordings in any media, whether through exhibition, distribution, reproduction, or otherwise, and may include my name, likeness, image, voice, appearance, and performance. The Organization may edit such recordings as it wishes and may use the recordings or excerpts therefrom for promotional and any other purposes. The Organization shall hold and own all right, title, and interest in and to the recordings.
I waive all rights under privacy, publicity, defamation, and proprietary rights relating to the recording. The Organization may transfer or license any of its rights hereunder. I represent that I have the right to use the text, materials, and other information I present and distribute at the conference, and will release and hold Organization harmless against all claims, liabilities, and expenses arising out of the breach of this representation.
I have read and understand the terms and conditions of this Release.
[Signature, Name, Address, Date]
- Elements to Include in Waivers of Liability for Participants in Higher Risk Programs of the Organization:
- Acknowledgements by Participant and/or Guardian:
- Awareness of inherently hazardous nature of activities that may lead to serious or fatal injury
- Awareness of specific risks including....
- Agreements by Participant and/or Guardian:
- Choose one or more of following headers: Release and Covenant Not to Sue, Waiver and Discharge of Liability, Assumption of Risk).
- Acceptance of full responsibility for risks, property damage, illness, injury or death.
- Release Organization and agents, representatives from any and all liability, causes of action, suits for property damage, bodily injury, death and all other claims arising out of participation in Organization's program.
- Organization has no liability regarding adequacy of medical care, equipment, supplies, or lack of evacuation capability.
- Organization released from claims for harm caused by other participants.
- At sole discretion of Organization staff, changes in program may be made and any student, participant may be excluded for safety, medical, other reasons.
- Agreement to Arbitrate:
Any controversy or claim arising out of this Agreement shall be settled by binding arbitration.
- Acknowledgements by Participant and/or Guardian:
- Simple Representations and Indemnity Provision for Use in Contracts:
- Disclaiming Liability
- On printed information.
- Web User Legal Notices and Pop-Up Boxes.
- Overall Risk Management
- Compliance Officer
- Board Manual and Board of Director "Job" Descriptions.
- Personnel Policies.
- Corporate and Tax Compliance.
Example: Volunteer Protection Act (U.S. Code Title 42, Chapter 139)
The Volunteer Protection Act shields from liability volunteers (including unpaid board members) who work without pay for 501(c)(3) organizations and cause harm while acting in the scope of their volunteer activities. Note that the Act only applies where the volunteers are properly licensed (if necessary) and do not willfully, recklessly, grossly negligently or criminally cause the harm. It does not apply in the context of driving/operating a vehicle. The law also prohibits punitive damages awards against volunteers unless they cause harm by willful or criminal misconduct. The primary deficiencies in the Act are that (i) as noted, it covers volunteers only for negligence, not for gross negligence (a plaintiff could simply allege the latter), (ii) it does not cover defense costs (a gross negligence allegation, even if exaggerated, would be expensive for a volunteer to defend), and (iii) it does not cover the organization itself for the negligence (and plaintiffs will look to the organization as well as the individual volunteer for the deeper pockets). Hence, this law does not take the place of insurance. Note the organization must have its tax determination before the Act will apply.