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Association liability insurance
What is association liability insurance?
The risk of litigation for associations, including not-for-profit associations, has increased in the last few years. This, in part, is due to tighter government scrutiny and regulation, in addition to the general public having a better understanding of their legal rights.
Risk does not just apply to the association, but also to its board of directors, officers and management team – all of whom can be held personally responsible for their actions or failure to act. Hence the growing importance of association liability insurance.
Association liability insurance is an insurance package that covers an association and its representatives against liabilities that might arise as a result of their activities.
Just as doctors and lawyers must protect themselves against malpractice, associations and their representatives must also take out liability insurance to cover the legal costs of defending claims and the cost of any personal liabilities they might incur.
A typical association liability insurance policy will cover the association and its representatives against a range of possible situations including:
Professional indemnity insurance
Professional indemnity insurance provides protection against claims of wrongdoing by the association or its representatives while providing professional services to third parties, such as members of the association.
Office bearer’s liability Insurance
Office bearer’s liability insurance protects representatives of the association from claims of wrongful acts arising from acts they committed without the association’s consent.
Employment practices insurance
Employment practices insurance covers any losses the association might incur as a result of employee claims such as harassment, discrimination or unfair dismissal.
Fidelity insurance covers losses incurred through fraud, dishonesty or misappropriation of funds or property by employees or association members.
Taxation audit investigation insurance
Taxation audit investigation insurance protects against costs associated with an IRD tax audit of the association, such as accountant’s fees.
Other insurances might include: legal representation costs at inquiries, the costs of government fines and penalties and the costs associated with defending OH&S-related claims.
Association liability insurance does not cover circumstances where the association or its representatives are found to be guilty of acquiring illegal personal profit or advantage or of committing a criminal or fraudulent act.Back to top
Who needs association liability insurance?
Organisations that typically need association liability insurance include groups such as:
- private organisations
- educational institutions
- industry associations
- licensed clubs
- political associations
- religious and sporting associations.
It is also no longer just the directors of an association who can be sued. Practically any person who represents the association and acts on its behalf, from officers and managers, to employees and volunteers, can have a personal liability claim brought against them.Back to top
What are some risks for boards of directors and management teams?
Directors and managers have a special responsibility to protect the association’s assets. These assets include the association’s employees, property, finances and reputation. Because of this responsibility, directors and management face a variety of threats and can be sued for:
- incompetent supervision of employees
- ineffective administration of association affairs
- inaccurate or misleading reporting of association finances
- misuse of association assets
- employee theft
- employee harassment or discrimination.
Failure to act or failing to preempt a situation can also lead to claims being filed on the grounds of negligence or failing in their duty of care.
A typical example might be an association that goes bankrupt due to the fraudulent actions of one of its directors. The creditors then sue each of the other directors for failing to conduct regular audits, which would have brought the fraud to light.Back to top
What types of claims does association liability insurance protect against?
Typical claims that are made against associations can include:
- Employment claims. A former employee alleging wrongful dismissal on the grounds of discrimination.
- Sexual harassment claims. A victim alleging sexual harassment by an association representative sues the directors for negligence in hiring that representative.
- Breach of duty of care claims. The directors are sued for approving expenditure that leads to the association’s demise, on the grounds of inadequate due diligence.
- Failure to supervise claims. An association is sued after one of its representatives loses sight of a person in their charge, who then commits a criminal act.
Most of the lawsuits brought against not-for-profit associations are employee-related claims that allege wrongful employment practices.Back to top
Association liability insurance exclusions
Like any insurance policy, certain exclusions apply, which is why it is important to read the fine print and seek professional advice. Common exclusions in an association liability insurance policy might include the insurer’s exemption from liability for losses incurred from a claim involving:
- asbestos in any form
- assumed liability by the insured through any agreement, clause, warranty or guarantee
- a violation of the insured’s obligations with respect to employee benefits such as workers compensation or disability benefits
- bodily or mental injuries, illness, disease, death or property damage resulting from the insured’s employment with the association
- criminal, fraudulent, dishonest or malicious acts by the insured
- deterioration of documents due to fading, mould, vermin, pest infestation or general wear and tear
- industrial actions such as strikes, lockouts or demarcation disputes
- advice given by the insured in relation to investments or asset performance
- the insured’s ownership or operation of a motor vehicle, marine vehicle or aircraft.
- prior knowledge of the act or event by the insured or awareness that it would result in a claim prior to taking out the policy
- radioactive contamination by nuclear fuel or waste or from nuclear explosion
- a breach of occupational health and safety law by the insured
- the occupation of land or buildings by the insured
- pollution in any form
- a company or trust which the insured controls or has controlled
- acts committed before a retroactive date
- any remuneration paid to the insured without the consent of association members
- the insured’s failure to recover the loss by other available means
- trading debts or refund of professional fees
- war or acts of terrorism.
Association liability insurance FAQs
Q. What are the duties and responsibilities of an association’s directors and officers?
- A. Directors and officers must manage the organisation appropriately, always act honestly in its best interests, use reasonable care and diligence and never use their positions for personal gain.
Q. What is wrongful conduct?
- A. Wrongful conduct is an act, error, omission or a breach of duty while acting on behalf of an organisation.
Q. What government regulations apply to associations?
- A. The Incorporated Societies Act 1908 imposes strict legal requirements that associations must adhere to and issues severe penalties for directors and board members who misuse their positions.
Q. How much does association liability insurance cost?
- A. As with any insurance, the cost of association liability insurance will depend on the nature and size of the organisation and the level of risk it represents to the insurer. Low risk organisations pay lower premiums than high risk ones.
Q. Why should I use an association liability insurance broker?
- A. An insurance broker can use their knowledge of the insurance marketplace to find you the most competitive cover from a range of different insurers.
Q. What’s the best way to compare association liability insurance policies?
- A. As well as cost, you need to compare factors such as maximum sum insured, excess payable, level of cover, exclusions and terms and conditions.
Apply for association liability insurance
Because of the wide range of claims that can be brought against an organisation, association liability insurance is not something you can afford to think twice about. Whether you operate for profit or not, in an increasingly litigious society, association liability insurance is an essential protection that every organisation must have.Back to top
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