Donate

Liability: How to Manage Your Risk

Liability: How to Manage Your Risk

When you form a Microboard, it’s important to understand the risks involved. Whether your board is focused on advocacy or providing services (such as hiring staff, contracting respite, or arranging home share support), directors must know how to reduce and manage liability.

About Boards and Directors

An organization can be ‘incorporated’ as a society under federal or provincial law. This society can be for-profit (organized for commercial objectives), or it can be non-profit (organized for charitable purposes).

A non-profit society can also be referred to as:

  • a club
  • an association
  • a corporation
  • a league
  • a committee (as in the Canadian Olympic Committee)

A board of directors is a group of elected or appointed members who oversee a society’s activities. Boards may also be called:

  • Board of trustees
  • Board of managers
  • Board of governors
  • Executive board

It is often referred to as “the board”.

Directors are volunteers. While they may be reimbursed for expenses, they are rarely paid. Each director fulfills a specific role, such as president, treasurer, or secretary.

Directors are responsible for three main duties:

  • Diligence – act carefully and responsibly.
  • Loyalty – act in the best interest of the organization.
  • Obedience – follow the law and the organization’s rules.

Understanding Liability

Liability means being legally responsible for the consequences of one’s actions or decisions.

Usually, the term ‘consequences’ means damage or loss experienced by someone, and being responsible for such consequences means having to pay financial compensation.

Directors may face liability if:

  1. A law (statute) is broken.
  2. A contract is broken, breached or violated.
  3. An act, or a failure to act, whether intentionally or unintentionally, causes injury or damage to another person.

To indemnify means to put someone back in the same financial position as they were in before the issue happened.

Directors may be indemnified for:

  • Legal fees
  • Statutory fines
  • Lawsuit settlements
  • Other legal obligations

 

Note: Indemnification depends on the organization’s ability to pay.

Risk Management

Risk exists in all activities, but directors can reduce exposure by following a three-step process:

  1. Identify what could go wrong and the potential harm.
  2. Put safeguards in place to prevent harm.
  3. If harm does occur, identify practical measures that can be taken to lessen the impacts of harm and pay for any resulting damage or losses.
  1. Assume the risk – decide that the risk is minor and do nothing.
  2. Reduce the risk – find ways to change people’s behaviour or work environment so that the degree of risk is reduced.
  3. Eliminate the risk – avoid risky activities.
  4. Transfer the risk – accept the risk but transfer the liability associated with it to someone else through a written contract.
  • Document meetings and decisions.
  • Meet legal reporting requirements.
  • Ensure directors fulfill their roles.

If you hire staff:

  • Train and monitor staff and volunteers.
  • Inspect and maintain workplaces and equipment.
  • Screen staff and volunteers carefully.

Directors’ and Officers’ Liability Insurance

Directors’ and officers’ insurance is general liability insurance. It covers the costs that directors may have to pay because of damages to another party.

Directors and officers’ liability insurance only covers those losses that come from a director’s own ‘wrongful acts’.

Wrongful acts can be defined as:

  • An error.
  • A misstatement.
  • A misleading statement, act, or omission.
  • Not doing some other duty the director should have, while they are insured.


The risk is not always that a director will be found guilty of a wrongful act, but simply that someone will make a legal claim that there has been a wrongful act. The cost of defending a
claim can be high.

Most policies do not cover:

  • Fraudulent, dishonest, or criminal acts.
  • Breach of contract or wrongful dismissal.
  • Fines and penalties for legal violations.
  • Human rights complaints.
  • Harassment or sexual harassment.

Microboards must purchase their own directors’ and officers’ liability insurance, even if you have a funded contract that comes with a commercial general liability policy.

Visit our Insurance webpage to learn how and where to obtain insurance.

Best Practices for Directors

An incorporated society provides directors with the protection of the “corporate veil.” As a separate legal entity, the society—not its directors or members—is the target of lawsuits. This means directors are generally protected from personal liability for actions taken in their role.

If you join a Vela Microboard, the following guidelines will help you manage risks, even without insurance.

Note: Some guidelines apply only to Microboards that employ staff.

  • Attend and participate fully.
  • Submit written reports.
  • Declare conflicts of interest (record them in minutes).
  • Avoid rushing decisions.
  • Keep personal copies of key documents.
  • Review regular financial reports.
  • Approve and monitor budgets.
  • Ask questions about unclear financial matters.
  • Track and meet reporting requirements (assign a director to confirm these requirments are being fulfilled). 
  • Know who is authorized to sign cheques and for what amount. 
  • Have multiple directors review all contracts
  • Know the society’s constitution and bylaws.
  • Follow policies consistently.
  • Update or create new policies when needed.
  • Commit time to risk management policy development.
  • Make sure that staff and volunteer positions have written job descriptions.
  • Maintain a staff policy manual.
  • Implement strong screening practices.
  • Review and update documents annually.
  • Request and review all insurance policies.
  • Support ongoing training for staff and volunteers.

General Guidance

  • Trust your instincts. If something feels wrong, investigate.
  • Directors are responsible for what they should have known, not just what they actually knew.
  • If you need to deal with a complex matter, seek professional help (a Vela Mentor, a lawyer, a financial advisor, an HR consultant, a risk management specialist).