I was asked recently whether the indemnity provisions in the Societies Act mean that societies in BC don’t need an insurance policy. This post clarifies insurance and discusses the advantages of a policy and the disadvantages of relying on the indemnity provisions.
Neither the old Society Act nor the new Societies Act require a society to have insurance. However, it is always a good idea to have insurance such as third party liability and directors and officers insurance. Primarily, this insurance will protect directors and officers, or volunteers in the exercise of their volunteer activities. If you are a sports organization, you will want to have a broad policy to protect players, coaches, and the organization itself from any claims.
The new Act does have indemnity provisions for directors and “senior managers”, those individuals who are appointed by the Board to run a principal part of the organization. However, these indemnity provisions do not operate as insurance does. These provisions may not trigger a duty to defend (which is where your insurance company appoints a lawyer to defend you in a claim) or indemnify (which is when your insurance company pays any award against you or the society as awarded by a court, or settles a claim on your behalf). They may only apply in certain situations, and may not apply until after the litigation ends. The society itself must also actually make the payment, so there’s always the risk that the society dissolves before the indemnity is issued and more litigation is required to obtain the indemnity. The society may have no assets, making the indemnity hollow. A particular director or senior manager may be forced to incur significant personal costs prior to seeking indemnity from the society.
There’s also a business reason for having directors and officers insurance. In my experience, it is difficult to attract qualified directors and officers to an organization which will not insure them. Depending on the nature of the organization, it is ideal to have both third party liability and directors and officers insurance. That way, if the organization is sued or there is an injury, the organization and the director can go directly through the insurance policy rather than going through the process of having the society, which may not have substantial assets, indemnify the director/officer.
Image courtesy of Elvind Lindseth, via a Creative Commons license. No alterations were made to this image.