With Insurance Awareness Day just around the corner, we wanted to highlight some of the key misconceptions surrounding charity insurance cover that we often hear and experience in the charity and voluntary sector.
Here, we explain when and why these various covers apply and what you need to consider when selecting your policies, to ensure your organisation, and those working within it, are adequately protected.
1. My charity/company is Limited by Guarantee so I don’t need Management Liability
If your company/charity is Limited by Guarantee, you have the benefit of limited financial liability meaning you will only be responsible for paying company debts up to the amount of their guarantees. The misconception is that Management Liability covers the same thing when, in fact, it does not.
Management Liability is a highly recommended cover to have in place for your organisation. Management Liability policies provide protection for claims made against individual company directors and officers for negligent acts, errors and omissions in the running of the organisation. It can provide cover for legal action, investigations, prosecutions, contract disputes, employee dishonesty, employment claims (such as discrimination, unfair dismissal etc.), infringement and copyright claims etc.
Cover can often be extended to cover the company entity (as well as the individual directors). This is particularly important as Management Liability policies also cover regulatory investigations, and with approximately 90 regulatory bodies in the UK, it is extremely valuable; the legal costs for representation alone can be costly. Not to mention, if you are a Director/Trustee of another organisation, it is possible for investigations from certain regulators to extend to other organisations you are involved with.
Without Management Liability, the company entity would not be liable to pay for the defence cost, leaving an individual to front the costs of any legal representation themselves.
This is such a valuable cover that we have seen organisations use the fact they have invested in a robust Management Liability product to help them recruit Directors/Trustees, as they are able to show their commitment to the new recruits by providing them with such protection.
2. I don’t need to insure donated items as they cost us nothing
It is important to consider the potential implications of losing any donated items and not being able to replace them in a timely manner, or at all. The impact could be different depending on what the item is; for example, not being able to maintain a community garden due to the theft of a lawnmower differs from that of a donation box being stolen and potential income being lost.
You should also consider business interruption that could be caused by the loss or damage of such items. For example, if an activity or event was dependent on a piece of equipment that was subject to malicious damage, then there could be 2 claims:
- Repair or replacement of the equipment
- Loss of income from loss of production
Although donated items do not carry a cost to the organisation, they still need to be insured for the replacement value of a modern-day equivalent. Most policies provide “new for old” cover, which is why you need to insure for an equivalent piece of equipment at today’s value.
3. We will get the lowest limit of Public Liability as we don’t need it by law
Public Liability insurance covers the cost of claims made by members of the public for incidents that occur in connection with your business and its activities. It covers the cost of compensation for things such as personal injury, loss of or damage to third-party property, and death.
Therefore, although not a legal requirement, it is important to consider Public Liability insurance for your organisation. If your organisation has facilities that are open to the public, run events, or provide services to vulnerable individuals, then special consideration needs to be given to what limit of indemnity you should opt for.
If you have any contracts with Local Authorities, or visit/provide services at other organisations’ venues, you may also find that they require you to hold a certain limit of Public Liability cover, anything from £1million to £10million.
4. I don’t employ anyone so I don’t need Employers Liability
Employers Liability is a legal requirement should you employ someone under a contract of service or apprenticeship.
Employers Liability covers you for legal and compensation expenses from potential employee claims for work-related illness or injury. The court can order, as they see necessary, an employer to pay compensation for injury, other damages and costs, which can soon mount up.
While under your direct control and supervision, any of the below could be classed as an employee under a contract of insurance:
- Employee
- Labour master and persons supplied by them
- Individuals employed by labour only sub-contractors
- Self-employed person (not being in partnership with you, the policyholder)
- Individual hired to you or borrowed by you, the policyholder
- Individual undertaking study or work experience
- Person working under the Community Offender Act 1978 or similar legislation
- Prospective employees being assessed by you, as to their suitability for employment
- Volunteer
- Trustee
Although you may not be required to carry Employers Liability by law, this does not necessarily mean you have no exposure to potential loss, given the insurance definition outlined above.
The consequences of not having charity insurance and Employers Liability Insurance could be costly. Should an individual under your supervision/control have an accident whilst carrying out the designated activity, and allege your business was negligent, then the organisation would have to pay for legal defence costs. Should the business be found negligent, you could then also be responsible for the third-party’s legal costs as well as any compensation.
How McClarrons can help you with Charity Insurance
Insurance is complex and if you are running a charitable organisation, we would always recommend seeking specialist advice from a charity insurance broker. They will be able to talk you through your various options of cover, the benefits of each, as well as the risks of not having certain policies, and guide you on the areas of insurance that would be most appropriate for your specific business and activities.
For a complimentary review of your charity insurances, you can contact McClarrons’ Care & Social Welfare Insurance Team on 01653 600477 or at care@mcclarroninsurance.com.
