'Tis the season for thinking of charity, and to their credit, high-net-worth individuals should be applauded for contributing not just their money but a significant portion of their time. An independent study recently commissioned by ACE showed that nearly 60 percent of individuals in households with $5 million in investable assets or more, excluding the primary residence, serve or have served as unpaid board members or trustees of charitable organizations.
Unfortunately, no good deed goes unpunished.
Whether or not you receive compensation as a board member or trustee, you can be held personally liable for the actions or inactions of the organization.[1]
How bad can it be for an organization that is trying to do good? Bad enough. Perhaps the organization funded the construction of a playground for disadvantaged kids. Then a child fell off a swing and suffered brain damage resulting in the need for multiple surgeries and lifelong care. The cost could run into the tens of millions of dollars.
While the organization may carry insurance to protect itself, the limited budget common with charities typically prevents the purchase of a gold-plated insurance program. Coverage limits may be inadequate. At that point, plaintiff lawyers look for parties with 'deep pockets,' including the board members.
Moreover, in a difficult economic period when charitable organizations may be forced to trim paid staff, the risk of wrongful termination and other wrongful-employment-act lawsuits rises. This type of legal action actually presents the greatest risk for board members, but many remain unprotected. Among the high-net-worth individuals who have been voluntary board members in ACE's survey, 44% did not carry directors and officers insurance to protect themselves.
