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Volunteer Legal Handbook
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V. So Should You Be Worried?
At the start of these materials, we presented four hypothetical lawsuits brought against you as a volunteer. We now re-visit those lawsuits in light of the principles of risk management you've seen here. Each claim is analyzed with and without careful risk management.
You volunteer to drive a group of little league baseball players to a baseball game. You are involved in an accident and some of your little league passengers are hurt. Are you liable for their injuries?
1. With risk managementNo problem. You have several "layers" of protection. Here's how and why.
a) Nonprofit corporation insuranceAs a careful volunteer, you made certain that the nonprofit corporation's auto insurance covered your car and its passengers while you were performing volunteer services for the nonprofit corporation. So there is insurance available through the nonprofit corporation, and while people may be hurt, at least you don't face a big claim.
b) Your insurance
As a very careful volunteer, you made certain that even if the nonprofit corporation's insurance didn't cover an accident in your car while on volunteer business, your insurance did. Now you have the luxury of having two insurance policies in place.
2. Without risk management
Bad news. The nonprofit corporation's auto insurance only covers vehicles owned by the nonprofit corporation. Your personal auto insurance policy excludes use of your auto for "business purposes," and defines volunteer work as "business purposes." Even if the auto accident wasn't your fault, you may get to defend a lawsuit brought against you. Or the nonprofit corporation may go broke defending you.
You serve as a director and the treasurer of a nonprofit corporation. You are advised that your executive director has embezzled monies that were supposed to have been paid to the IRS as withholding taxes. Now the IRS has asked you to pay them the embezzled monies. Are you liable?
1. With risk managementNo problem. You have several "layers" of protection. Here's how and why.
a) Audit Committee workAs a part of a comprehensive risk management program, you helped put in place an audit committee that carefully reviewed the financial statements, and obtained outside audits on an annual basis. You are able to show the IRS that the former executive director's scheme was so clever it fooled the audit committee and the outside CPA firm as well.
b) Employee Bonding
You obtained bonding for all employees who dealt with funds, including the executive director. The bond amount is large enough to cover any claim of the IRS It's the bonding company's problem.
c) Director's and officer's coverage
If the bonding is inadequate, there's still the director's and officer's insurance policy. A claim by the IRS falls squarely inside the policy, and best of all the insurance company will have to hire an attorney to represent you in any fight that may occur with the IRS
2. Without risk management
Bad news. You just signed whatever your executive director asked you to sign. Apparently that included large checks drawn to him. You never got around to getting bonding. And the director's and officer's coverage contains an obscure exclusion for claims arising out of a breach of criminal law. It turns out it's a crime to fail to take appropriate steps to prevent the loss of withholding monies. The IRS debt isn't even dischargeable in bankruptcy.
You are an unpaid supervisor of a group of volunteers. One of the volunteers has failed to perform adequately, and you have terminated his volunteer status with the organization. Now the former volunteer has sued you and the organization for wrongful dismissal. Are you liable?
1. With risk managementNo problem. You have several "layers" of protection. Here's how and why.
a) Volunteer evaluation processThe Risk Management Committee instituted a volunteer review process three years ago. The discharged volunteer had received bad reviews on three occasions, and after the third bad review had signed a written agreement that if he failed to meet specific, detailed requirements he would be released or placed in a different situation.. He failed to meet those requirements. But instead of releasing the volunteer, he was transferred to a different organization where he might perform more acceptably. Since it was a transfer instead of a release, the claim was never brought.
b) General liability insurance
The Risk Management Committee obtained a policy of liability insurance that covered not just tort liability but claims based upon a claim of breach of contract, thereby assuring coverage for the former volunteer's lawsuit. You will be defended and the insurance policy will pay any claim.
2. Without risk management
Bad news. You should have gotten rid of the bum years earlier, but you never wrote anything down, and now it's your word against his. And the general liability policy only covers tort claims, not claims for breach of contract. The nonprofit corporation will try to defend you, but it's already got problems defending itself.
One of your organization's volunteer coaches has been arrested and charged with child sexual abuse. Now several of the parents are threatening to sue you and the organization. Are you liable?
1. With risk managementNo problem. You have several "layers" of protection. Here's how and why.
a) Volunteer screening and placementBecause your organization instituted a program of reasonable screening for volunteer coaches, which included a requirement that they complete a form providing information about their background and experience, your officers and directors are not likely to be personally liable for negligently selecting the coach, who lied on his application. However, your organization may still be exposed to vicarious liability for the coach's sexual misconduct.
b) Volunteer review and evaluation
Because your program had an ongoing system for review and evaluation of volunteers, including evaluations from parents whose children worked with the coach, rumors or the coach's potential for misconduct reached you before real harm could be done. And concerned parents had a means of advising you of their concerns.
c) Liability insurance
Since you knew there was a risk of this kind of claim, you made certain that your liability insurance included coverage for this kind of risk. You purchased an endorsement to the standard general liability policy for this specific kind of claim, including the cost of defense. You also maintain a reserve in your budget for the amount of the deductible.
2. Without risk management
Bad news. You never dreamed it could happen in your organization. Because it is so difficult to find volunteer coaches, you accept everyone who signs up, with no questions asked. Because you took no preventative measures and because some people now are saying that unmistakable signs of the coach's misconduct were overlooked or ignored, your officers and directors are exposed to personal liability for gross negligence. Worse, you are dismayed to learn that the organization's liability insurance explicitly exclude coverage for that kind of claim.
Risk management is not going to solve all legal problems, but it will help anticipate and avoid many claims, and provide a defense and the costs of defense in most claims that do arise. If the nonprofit corporation or you as a volunteer are required to pay money to someone, there will be a source of funds besides your pocket or the nonprofit corporation's budget, so the nonprofit corporation will still be able to deliver its services. Good risk management involves work and a continuing commitment to its goals, but everyone wins.
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