Volunteer Act Offers Limited Protection: Directors & Officers Liability Insurance Still a Necessity

The National Public Accountant, March-April 1998 | Go to article overview

Volunteer Act Offers Limited Protection: Directors & Officers Liability Insurance Still a Necessity


While many associations have celebrated the passage of the Volunteer Protection Act, the high level of publicity should not prevent a thorough examination of the legislation and its insurance implications.

The Volunteer Protection Act is successful in that it will create the confidence necessary to increase volunteerism in the United States. However, it should not create a false confidence that prevents an organization from taking the proper steps to protect its volunteer members, employees, directors and officers. For example, it is not widely understood that suits brought against associations themselves and association employees are not affected by the Volunteer Protection Act.

Complex in its structure, the Act is intended to allow a range of interpretation that can justly apply to many situations. However, the Act clearly states the areas where volunteer organizations will be at risk. It also indicates where there will be areas open for an interpretation that will only be clarified after costly test cases.

Among the main issues of interest to volunteer associations are that the Act:

* gives no specific Federal body the authority to interpret the law;

* allows individual States wide leeway to implement local practices and even allows States to overrule the Act;

* does not clearly define the term "volunteer";

* does not prevent wrongful cases from being filed; and - does not apply to misconduct that constitutes a hate crime, an act of violence, a sexual offense, a violation of civil rights law or an act a defendant conducted while under the influence of alcohol or drugs.

This last point is critical considering that the Nonprofit Risk Management Center in Washington, D.C. has determined that 80 to 90 percent of all lawsuits against nonprofit organizations fall into the area of employment-related claims.

Of course, a case does not have to be decided against an association in order to be an expensive proceeding. So while the Volunteer Protection Act provides an incentive for individuals to become involved in an organization, it does not protect the organization, or its directors and officers, from costly litigation. Insurance policies with Duty-to-Defend clauses are still among the best means of providing immunity from legal expenses.

Because the term "volunteer" is not clearly defined in the Act, one may have to incur court expenses just to prove he or she is a volunteer. The Act indicates that a volunteer is an individual performing services for a nonprofit organization or a government entity who does not receive compensation (other than "reasonable" reimbursement or allowances for expenses actually incurred) or any other "thing of value" in lieu of compensation in excess of $500 per year. …

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