Liability

Board members need to be aware of the four kinds of legal liability that can be exercised by courts. Obviously, prevention of liability is a board responsibility.

• An organization can be sued under common law for a breach of duty to the public or a third party. Negligence is a common example. (Called tort liability)
• Organizations are responsible to third parties under federal and state legislation. Examples are occupational health and safety and employment laws. (Called statutory liability)
• The organization can be held responsible for the actions of its employees. (Called vicarious liability)
• The organization has obligations brought by contracts. These include leases, hiring facilities, sales, purchases, and building contracts. (Called contractual liability)

Incorporation gives board members a great deal of protection, and it is one of the main reasons for incorporating. However, this kind of protection isn't always absolute. In general, board members could still be liable if they are dishonest or negligent. Consequently, board members can be personally sued for:

1. Not doing your the role assigned to you to the best of your ability (i.e. lack of due diligence).
2. Not following due process in decision-making.
3. Doing something that you are not authorized you do to.
4. Failing in duty of care (i.e. you should have foreseen it and taken steps to prevent a harm to someone).
5. Something that involves breaking the law.
6. Acting with a conflict of duty or of pecuniary interest.

Insurance cover adds to your protection, but insurance policies generally do not cover you for being dishonest or negligent.