Many members, volunteers and board members of grassroots river and watershed conservation groups primarily and justifiably focus on achieving their organization’s mission to protect and restore rivers and their watersheds. Insurance, liability and risk management frequently are low priorities on everyone’s radar screens. However, as evidenced by this edition of River Voices, these are important issues; the board needs to address them and create a culture where the health and safety of the people working with the organization, as well as the entity itself, are very important.
In today’s litigious society, everyone is concerned about potential liability for damages while working or volunteering for a nonprofit organization. In most cases, to be liable one must act negligently. Negligence involves the failure to use proper care in personal actions or the failure to perform the standard of care that society expects of a reasonable person. To be negligent, the person or organization must:
- have a duty to the party;
- breach that duty;
- cause actual harm or damage; and
- have a reasonably close relationship between the breach and the resulting harm (proximate cause).
The federal and state governments have enacted numerous laws that may limit or eliminate a person’s liability for their actions as a volunteer. To fully understand the protections provided to both the organization and its employees and volunteers, one must know about nonprofit corporations, tax exemptions and the various liability laws applicable to their organization.
An incorporated nonprofit organization is an artificial creation of a state government where the corporation is considered a “person” in the eyes of the law. A corporation comes into being by filing the organization’s articles of incorporation, bylaws, list of directors and officers and any other state requirements. The state authorizes the incorporation which continues to exist by complying with its state requirements. As a nonprofit corporation, the entity has all of the legal protections of a for-profit legal corporation with some modifications due to its nonprofit status. However, a nonprofit corporation usually does not have any special liability immunities or standing within the state.
Tax Exempt Status
Not all nonprofit organizations are the same under the Internal Revenue Code. The term “nonprofit” only refers to the organization’s corporate status within the state of incorporation. Not all nonprofit organizations are “tax exempt.” A tax exempt organization is exempt from paying federal and state income taxes, a privilege conferred on the entity by meeting certain requirements under §501(c) of the 1986 Internal Revenue Code. Due to the special considerations for charitable organizations [501(c)(3)], where donations are tax deductible to the donor, the Internal Revenue Service must approve the determination of an entity as a 501(c)(3) organization. Other 501(c) organizations can be tax exempt, but do not require IRS approval for that status, although they must file their exemption with the IRS.
Neither nonprofit nor tax exempt status by itself confers any liability immunities or limitations on a nonprofit, tax exempt organization. The type of tax exempt status often is a factor in determining if an immunity or liability limitation exists.
Many people mistakenly believe that the common law doctrine of charitable immunity applies to any nonprofit organization. Charitable immunity only applies to 501(c)(3) or charitable organizations as defined by state statute. The charitable immunity defense has been abolished in the majority of states, although nine (9) states have some vestiges of charitable immunity: Alabama, Arkansas, Georgia, Maine, Maryland, New Jersey, Virginia, Utah and Wyoming. The charitable immunity defense primarily benefits the charity not the individual.
A nonprofit can have direct liability for its actions or vicarious liability for the actions of its agent(s). A volunteer working on behalf of a nonprofit is an agent of the organization when the person acts on behalf of and with authority of the organization; the organization has the right to control the individual’s actions; and the individual is acting within the scope of his or her duties. Therefore, the acts or omissions and care in the performance of their activities by a volunteer or employee are considered as the acts or omissions of the nonprofit corporation. According to the American Bar Association’s Guidebook for Directors of Nonprofit Corporations, Second Edition (page 135):
As a general rule, the nonprofit corporation will not be exonerated from liability arising from the conduct of the agent simply because the organization is a nonprofit corporation or because the agent was uncompensated or a volunteer.
Therefore nonprofits are responsible for the actions of their volunteers and are expected to foresee and address the risks of using volunteers. Volunteer management (selection and screening of volunteers, training and supervision including discipline and termination) is a critical technique for managing the risks of using volunteers.
Directors and Officers
As a board member, a person has unique legal duties and responsibilities that, if not met, expose the person to potential legal action. A director’s liability does not arise just from corporate liability, but when the director is charged with a breach of duty or other harm to either the corporation or another party.
A suit against a director can be brought in three ways:
- An outside party sues the director directly, alleging some injury done by the corporation and claiming the director as a principal or implied coconspirator in connection with the injury.
- Someone sues the director on behalf of the corporation (derivative action).
- The director is held personally liable under various federal and state laws such as environmental claims, tax delinquencies (sales tax, payroll taxes, improper tax withholdings) and antitrust claims.
For the directors’ protection, the board should seek indemnification from the corporation to the maximum extent permitted by the state’s corporation law. Depending upon the wording of the indemnification provision, the organization promises to indemnify the director for defense expenses and the payment of any awards, judgments or settlements. Even if the organization has limited financial assets, the nonprofit should include an indemnification provision within its bylaws or use other appropriate legal means. The indemnification provision should be funded by a Directors & Officers Liability insurance policy.
Many states have enacted laws that immunize volunteers from liability arising from their service to the nonprofit organization. The laws have various names such as Good Samaritan, volunteer protection, volunteer immunity, liability limitation, shield laws and, in a very few states, charitable immunity. The U. S. Congress enacted the Volunteer Protection Act of 1997 (VPA).
However, none of the state volunteer immunity laws or the VPA apply to the organization; they only protect the volunteer. The intent of the state legislatures and Congress was both to protect the volunteer to encourage volunteerism, and also to ensure the injured party is compensated for damages by the volunteer’s organization.
State liability laws also contain exceptions to the immunity and protections provided to the volunteer. Most of the laws exclude protection if the volunteer’s conduct was found to be willful or wanton, or grossly negligent.Many states have an exception for the operation of a motor vehicle, which is one of the most common causes of liability claims. Other state exceptions apply to:
- fraud or fiduciary misconduct;
- actions brought by an attorney general or other state official;
- performance of certain professional services; and
- knowing violation of the law.
Several states require the organization to carry liability insurance, with specified limits and a few states limit the volunteer’s liability to the amount of their personal liability insurance subject to a minimum limit. Another requirement may be that the organization has an indemnification provision within its articles of incorporation and/or bylaws. Last, a state may require that the volunteer has written authorization to act on behalf of the organization.
Nonprofit organizations have extremely limited liability protection as the result of their nonprofit or charitable status. The nine states with limited charitable immunity offer some protection, but it is inadequate for the well-being of the organization and its employees, board and volunteers. The various volunteer immunity laws offer some protection, but the laws only limit recovery and do not prohibit someone from suing the organization and/or its agents. Often a plaintiff ’s attorney will craft the suit papers to charge willful or wanton behavior and gross negligence to bypass the immunity barrier to recovery.
The best techniques to protect the organization and its agents and to prevent harm are an effective volunteer management program and other risk management techniques. Another vital technique is to purchase the appropriate insurance policies to protect the organization and its members, board and volunteers.
Volunteer Protection Act of 1997
In 1997 President Clinton signed into law the Volunteer Protection Act of 1997 [42 U.S.C. §14503(a)] with the intent to encourage people to volunteer while easing their concerns about personal liability. Despite the good intentions of the law, it does not eliminate the need for insurance or implementing effective volunteer management policies and
First, while the Volunteer Protection Act (VPA) does limit the liability of the nonprofit, a nonprofit organization is still responsible and potentially liable for the actions or inactions of its volunteers. The law only provides immunity to the individual volunteer, not the organization.
A second concern is that the law does not prohibit someone from filing a lawsuit against a volunteer; it only bars recovery if the volunteer meets the requirements within the act. For example, the VPA does not immunize the volunteer if the behavior is willful or criminal misconduct, gross negligence or reckless misconduct. A good
plaintiff ’s attorney will allege gross negligence and willful and wanton conduct. Therefore, a volunteer can still be
sued, and the person and/or the nonprofit will have to defend the individual.
The law applies to “volunteers,” any individual performing services for a nonprofit organization or governmental entity without compensation or anything of value in excess of $500. A “nonprofit” is a 501(c)(3) organization or any entity operated for public benefit, charitable, civic, education, religious, welfare or health purposes.
A volunteer is not liable for harm caused by his or her act or omission (failure to act when you have an obligation to do so), if acting within the scope of the volunteer’s organizational responsibilities at the time of the incident. The volunteer is also protected if:
- The person is properly licensed, certified or authorized by authorities to so act (if required);
- The harm is not caused by willful or criminal misconduct, gross negligence, reckless misconduct or conscious, flagrant indifference to the rights or safety of another;
- The harm is not caused by operation of a motor vehicle, vessel, aircraft or other vehicle that the state requires
license or insurance to operate.
The VPA does not protect the volunteer if the individual is:
- Convicted for a crime of violence;
- Committed a hate crime;
- Convicted for a sexual offense;
- In violation of federal or state civil rights laws; or
- Under the influence of intoxicating alcohol or any drug.
The Volunteer Protection Act preempts state laws “to the extent that such laws are inconsistent with the Act.” However, a state law may apply additional conditions such as:
- The nonprofit must adhere to risk management procedures, including mandatory training of volunteers;
- A nonprofit is liable for the acts or omissions of its volunteers to the same extent that an employer is liable for the acts or omissions of its employees;
- The immunity is rendered inapplicable if an officer of the state or local government brought the civil action; or
- A provision that limits the applicability of immunity to nonprofits that have a “financially secure source of recovery,” such as insurance.
Each nonprofit should review its state liability laws and the Volunteer Protection Act to determine the extent of protection available to both the organization and the volunteers. None of these laws negate the need for general liability, auto liability or Directors & Officers liability insurance. None of the laws prohibit the filing of a claim or
lawsuit against a nonprofit or a volunteer; it just limits recovery under certain circumstances. One of the purposes of insurance is to fund the expenses needed to investigate and defend a claim. Also, good risk management strategies and techniques will minimize the chance of a loss and/or reduce the severity of a claim.
(c) 2006 Croydon Consulting, LLC
Originally published in River Voices, A River Network Publication