Protect Your Board Against Lawsuits

January 18, 2017

Lawsuits against churches and ministries are on the rise, making their board members especially vulnerable. Sometimes, courts have found directors and officers personally liable when their actions have resulted in financial damages.

Consider these examples:

  • Providing inadequate bookkeeping or financial oversight.
  • Allowing personal motives to drive church-related decisions.
  • Failing to preserve tax-exempt status.

Even well-meaning actions could put the personal assets of board members at risk. However, by taking steps to limit liability, church and ministry boards can find stronger legal positions in which they can properly function.

Incorporate your ministry

If a church is incorporated, board members can gain the same legal protections that apply to board members in businesses. This protection comes with two requirements:

  • The Prudent Person Rule protects board members from personal liability for board actions or decisions unless a “reasonably prudent person” would have avoided such actions or decisions under the circumstances.
  • The Duty of Loyalty Rule says that a board member’s actions and decisions must be free of personal motives.

When incorporating, first contact an attorney who is familiar with not-for-profit laws in your state.

Include bylaw protection

If your bylaws do not include indemnification provisions, enlist the help of a local attorney to draft some. These provisions could prevent board members from having to pay out-of-pocket costs if they are sued in connection with their ministry work. Evaluate your bylaws regularly by appointing a task force to review the bylaws for necessary changes or additions.

Consider charitable immunity laws

Most states have charitable immunity laws that can protect volunteer workers—and potentially board members—from being sued in connection with their volunteer service. That immunity, however, is limited because the laws generally:

  • Protect volunteers only, not church organizations or employees.
  • Prevent certain people from suing.
  • Protect some—not all—activities.
  • Removal from a lawsuit requires that volunteers hire an attorney.

Charitable immunity laws are complicated and vary by state. Ask a local attorney to review applicable state and federal charitable immunity laws with you.

Insure your board members

Standard general liability insurance policies do not cover claims against directors or officers for financial damages resulting from their failure to perform their duties. Separate directors and officers coverage helps protect board members’ personal assets in the event of certain financial damages and lawsuits. It also covers financial damages that other parties undergo when leaders fail to perform their duties properly.