The Importance of Association Liability Insurance for Associations

Associations fulfil an important role in society. However, they operate with unique challenges and responsibilities, often relying on volunteers and limited resources to achieve their missions. The term association is quite broad and can include a variety of organisations such as industry associations, charities and other benevolent societies, professional associations, licensed clubs, religious and community organisations, and sporting associations.

Despite the charitable or non-profit nature of many associations, such organisations still face rising risk exposures. Association Liability insurance is an important risk management tool for any association and can cover their liability to pay compensation for a wrongful act or breach of professional duty arising from their operations.

Association Liability insurance is generally offered as a combined policy specifically designed for non-profit associations. The policy can protect the association, directors, officers, committee members, employees and volunteers for liabilities arising from managing and operating the association. Association Liability insurance often includes various insuring clauses or coverage sections and some of the more common coverages available include:

Liability of directors, officers, trustees and committee members

Associations depend on their directors and officers to make crucial decisions. This coverage protects these individuals against their liability to pay compensation in relation to claims resulting from alleged wrongful acts, errors or omissions in their managerial duties. Common examples include allegations of mismanagement of funds, breach of fiduciary duty, breach of confidentiality or failure to adhere to regulatory requirements.

Professional Indemnity

Some of the services provided by an association include the administration and management of membership services, organising fund-raising activities, registration or training activities and can also include the publications of journals, newsletters and other professional or technical standards. The Professional Indemnity section of an Association Liability insurance policy can cover claims alleging a breach of duty in the conduct of the association’s services. This may include claims relating to negligence, misleading advice, unintentional defamation, and breaches of confidentiality.

Fines and Penalties

Associations must comply with various laws and regulations. If they fail to adhere to these laws and regulations, they may be subject to a fine or penalty. Association Liability insurance can cover:

• legal costs and expenses associated with responding to claims involving fines and penalties; and
• where not prohibited by law, payment of the fine or penalty imposed.

The following covers may be available as Optional Extensions to the policy and subject to an additional premium

Employment Practices Liability

Associations often work with a mix of paid employees and volunteers. This cover responds to claims that can arise from the interaction between association employees and volunteers, such as wrongful termination, discrimination, harassment, and defamation about a person’s job skill or job performance.

Fidelity 

Many associations involve members or participants who interact with each other and the broader community with a high degree of confidence and reliance. This cover can protect associations against losses due to fraudulent or dishonest acts committed by employees or volunteers. Examples of covered losses include theft of funds, embezzlement, and forgery.

Claims Examples

Associations can have unique exposures. The following claims examples can assist when reviewing the extent of cover provided under an Association Liability insurance policy.

• The Insured is an Industry Representative Association. A committee member resigned and sent an email to the Associations’ members notifying them of their resignation and the reasons for the resignation. It was alleged by the Association’s manager that the email sent by the committee member defamed the manager. The matter was settled for $100,000 including expenses.

• The Insured is an Industry Association. Following a Board meeting a loss of confidence motion was raised against the President of the Association and subsequently the Board stood down the President. The President alleged that the Association and Board acted improperly when seeking to remove them from the position of President. The matter was settled for approx. $150,000 including expenses.

• The Insured is a Sporting Association. It was alleged that the Association’s Treasurer misappropriated funds from the Association’s bank accounts stealing approx. $70,000. The Treasurer had exclusive access to the Insured’s bank account and was able to withdraw and transfer money without dual authority. The matter was settled for approx. $80,000 including expenses.

Conclusion

In summary, Association Liability insurance can provide associations and their insured persons with protection against the financial loss of having to pay compensation for a wide range of potential claims including those relating to management decisions, employment practices, professional services and more. So, it is a vital risk management tool that can assist associations to address the unique risks they may face in their day-to-day operations.

Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Claim examples are examples only. You should read them only as a guide. Every claim is different. Indemnity decisions and claim payments are determined on an individual basis, after we have assessed the claim. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a product, you should review the relevant policy documents.