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Is Your Church Board Protected?
By Allyssa Klingberg
Read time: 4 Minutes
Serving on the board of a church or ministry can be a rewarding experience for both the board members and the communities they serve. However, holding a board position can also open up directors to a degree of personal liability. What some board members may be unaware of when they choose to serve on a board is that they are exposing themselves to liability in connection with their service. This exposure occurs during their tenure and continues for some time thereafter.
Boards can be proactive about this risk, however, and one of the steps they can take is making sure that the nonprofit provides board members with an indemnification policy.
Knowing this, let’s take a look at what indemnification means.
What is Indemnification?
Indemnification means that the nonprofit will secure (protect) an individual against future loss or damages arising from events that occur while the individual serves in their capacity as a board member, employee, officer, or volunteer.
The provisions of an indemnification policy usually derive from the state law under which a nonprofit is incorporated, which grants the nonprofit the power to indemnify members of the board against claims they face while they maintain such roles. Of course, indemnification is subject to certain limits on intentional misconduct.
Many states, such as Delaware, have provisional statutes for incorporated entities that they may indemnify any director or officer if he or she:
- acted in good faith,
- acted in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and
- had no reasonable cause to believe that his or her conduct was unlawful, in the case of a criminal action or proceeding.
Resource:
How Exculpation, Indemnification and Advancement of Expenses Works
This is why it is so important for every nonprofit board to consider having an indemnification policy in place once incorporated.
Now let’s take a look at the steps you need to take to establish an indemnification policy.
7 steps to implement an indemnification policy
Knowing how to implement an indemnification policy can be just as crucial as understanding what it is. Below are a few steps to show you how to implement an indemnification policy in your own nonprofit.
1. Adopt an indemnification policy. If you would like to get a copy of an indemnification policy, please call us at 877-494-4655, and we will send you one by email absolutely free!
2. Save all demand letters and your responses to those demand letters.
3. Save all police reports, if any.
4. Save all correspondence with the insurance company, including whether they pay or deny any claims.
5. Fill out an advanced reimbursement request.
6. Pay the demand to the individual.
7. Make sure the individual pays the demand.
Liability insurance
Indemnification is only as valuable as the financial resources that underpin it. While a nonprofit may grant its directors a right to indemnification, if the nonprofit has no resources—or, is otherwise illiquid—the grant will merely be an empty promise that ultimately is of no value to the director. Because of this, nonprofits may consider purchasing directors and officers liability insurance, commonly referred to as a “D&O policy.”
D&O policies are intended to provide coverage in the event a director or officer is sued for alleged wrongful acts in managing the affairs of the nonprofit. Depending on the terms of the specific D&O policy, coverage can range in amount and scope. When considering whether to acquire a D&O policy, the nonprofit should consult with legal counsel and their insurance professionals to ensure they receive adequate and appropriate coverage.
Resources:
JDSupra - A Proactive Approach For Nonprofit Boards
Strengthen Your Foundation
Ministering to your community can be incredibly rewarding. A great ministry ensures that its legal foundation is solid. That way, the ministry can live on in the community for generations to come.
Please take the time right now to think about your nonprofit's foundation. Is it strong? Are there some things that keep you up at night? Do you dream about your ministry becoming a vital force in the community—filled with people, outreach, for-profit entities, salvations, and healings?
It begins with taking care of the little things first. With the StartRIGHT Service, you can establish a strong legal foundation for your church or ministry. Call us today at 877-494-4655 or schedule a call below to set up a time to share your vision for your ministry.
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