Board Liability Primer

October 25, 2010

Authored by: Keith Kehrer

Volunteer board members often ask whether they are personally liable for the actions of the nonprofit corporation.  The short answer is generally “no” – unless of course, the board member engages in some willful misconduct that caused harm (e.g., criminal misconduct, gross negligence, reckless misconduct, or flagrant indifference to safety).  The Federal Volunteer Protection Act, along with the State law equivalents, generally protect volunteer directors of nonprofit corporations from personally liability. 

For example, the Federal Volunteer Protection Act provides that no volunteer shall be liable for harm caused by an act or omission if the volunteer was acting within the scope of the volunteer’s responsibilities and the harm was not the product of criminal misconduct, gross negligence, reckless misconduct, or flagrant indifference to safety.  42 U.S.C. Sections 14501 – 14505.  Similarly, Missouri’s version of the act provides any officer or member of the governing body of an entity which operates under the standards of I.R.C. § 501(c) who is not compensated for his services, shall be immune from personal liability for any civil damages arising from acts performed in his official capacity. This immunity shall not apply to intentional conduct, wanton or willful conduct, or gross negligence.   R.S.Mo. § 537.117. 

In addition to these protections, the so-called “business judgement rule” protects the decisions of a board that are made in good faith and without conflict of interest, on a reasonably informed basis, and with a rational belief that the decision is in the best interests of the corporation.  Finally, director and officer insurance can provide additional protection (and, depending on the policy, cover legal defense fees).