SUPPLEMENT TO THE PUGET SOUND BUSINESS JOURNAL MAY 8-14, 2009
CORPORATE
Limiting the liability
thetliability
of nonprofit directors
ofLimiting
nonprofi
directors
MAY 8-14, 2009
CORPORATE CITIZENSHIP
VV
olunteer
service
on the
board
not
involve
inten- members for monetary damages subject to
olunteer
service
on the
board
liable
to the
RISK
of directors
a nonprofit
cortional
misconduct,
of directors
of aof
nonprofit
corcorporation
on the limitations noted above for intentional
ASSESSMENT knowing
poration
should
encouraged
poration
should
be be
encourany basis violaor to misconduct, knowing violation of law and
because it can
provide
both comtion
of lawelse
or any
aged because
it can
provide
anyone
for improper personal benefit transactions.
munity
benefit
and
personal
satisfaction.
transaction
from
both community benefit and personal
a personal ben- 5. There is also a federal statute known
But, it also can expose the volunteer to
which the director as the Volunteer Protection Act of 1997,
satisfaction.
efit improperly
personal liability. For this reason, nonprofit
received a person- which limits the liability of uncompensated
But,
it also can expose the volunreceived.
directors should understand their duties as
al benefit to which volunteers, including uncompensated nonteer directors,
to personal
liability.
For
this
4. There is
their personal liability for breach
the director is not profit directors, for an act or omission of
reason,
nonprofit
directors
shouldavailspecial
statutory the volunteer on behalf of the corporation,
of those
duties and
the protections
legally
entitled.
Michael
understand
their
duties
as
directors,
immunity
under
able to limit that personal liability.
2. By statute,
a subject to exceptions for willful or crimiDwyer
their personal
liability
for
breach
a
Washington
The duties of a nonprofit director are
nonprofit corpora- nal misconduct, gross negligence, reckless
of those
duties
andfrom
the the
protections
statute
elim- misconduct, or flagrant indifference to the
generally
derived
law of the state
tion
mustthat
indemavailable
to
limit
that
personal
liinates
individual
in which the nonprofit corporation is orga- nify a director who is wholly successful in rights or safety of the individual harmed.
ability.
liability
a nonprofit
to
nized and existing.
defendingofclaims
based ondirector
being a director
6. There are several insurance products
Washington
nonprofit corporations,
againstparties
the reasonable
expenses
incurred inde-that insure a nonprofit director against perTheFor
duties
of a nonprofit
director a third
for any
discretionary
director has derived
duties to from
act in good
faith,ofin cision
the proceeding.
are generally
the law
(or failure to make one) within sonal liability, including director and offia manner
the director
to be
in the his3.orInher
addition
to the
mandatory
the state
in which
the believes
nonprofit
corofficial
capacity
as aindemdirec- cer insurance covering liability for official
best interests
of the corporation,
and with tor
nification
by statute,
a nonprofit
poration
is organized
and existing.
unlessprovided
the decision
or failure
to acts or omissions, employment practices
the
care
that
an
ordinarily
prudent
person
corporation
may
provide
discretionary
For Washington nonprofit corpora- decide constitutes gross negligence. liability insurance covering employment
would
be expected
use under
in itsstatute
articles ofspecifically
incorpora- discrimination, sexual harassment, wrongtions,
a director
hastoduties
to similar
act in cir- indemnification
Although that
cumstances.
tion,
by
resolution
or
by
a
private
good faith, in a manner the director
does not limit the liability ofcontract,
a direc- ful termination and other employment
In fulfilling those duties, a director is to the extent not prohibited by law, for related liabilities, and charitable or volbelieves to be in the best interests of tor to the nonprofit corporation or its
entitled to rely on the opinions, financial the advance of reasonable defense costs, unteer service endorsements to personal
the corporation,
and with the care
members, the nonprofit corporation
statements and other information pre- amounts due under a settlement agreement liability insurance policies.
that pared
an ordinarily
prudent
person
limit the
liability
of aasdirector
or presented
by trusted
corporate may
or monetary
damages
so long
the direcConsidering the risk of personal liability
would
be
expected
to
use
under
to
the
corporation
and
its members
representatives, outside experts (including tor acted in good faith, reasonably
believed from serving as a director of a nonprofit
similar
damages
subjectoftothethe corporation and the opportunities for manlegalcircumstances.
counsel and public accountants), and for
the monetary
action was in
the best interests
Incommittees
fulfilling of
those
duties,
a
direclimitations
noted
above
for intenthe board upon which the corporation, and is not adjudged
liable to aging that risk, the
prudent
nonprofit
cor-Topel, RH,
Source:
Murphy,
KM and
tor isdirector
entitled
to
rely
on
the
opinions,
tional
misconduct,
knowing
does not serve; provided, that the the corporation on any basis or violation
to any- poration, its existing board of directors
and of Eco
National Bureau
financial
statements
inof
law
personal
benefit any newly proposed directors should evaludirector
acts in good and
faith, other
after reasonable
one
elseand
for improper
a personal benefit
improperly
formation
presented
inquiry, prepared
and withoutorknowledge
thatbyreli- transactions.
received.
ate whether the corporation is doing all that
ance corporate
is unwarranted.
4. There
trusted
representatives,
5.
Thereisisspecial
also astatutory
federalimmunity
statute it reasonably should to protect its nonprofit
Forexperts
breach of(including
those duties, alegal
director may known
under a Washington
statute that
eliminates directors from personal liability, and thereoutside
as the Volunteer
Protection
an ally
in Fred Hutch
be held
personally
liable to a third party or Act
individual
liability
of limits
a nonprofit
direc- by facilitate Become
their recruitment
and retention
counsel
and
public accountants),
of 1997,
which
the liabilcorporation itself
forboard
resulting
injury or ity
tor of
to uncompensated
third parties for any
discretionary as good corporate
citizens.Center’s quest to e
and the
committees
of the
upon
volunteers,
Research
loss.
decision
(or
failure
to
make
one)
within
which the director does not serve;
including uncompensated nonprofit
andisrelated
diseases.
But, that
there the
are adirector
number of
protections
his or her official
as a director
a shareholder
of LaneJoin the
provided,
acts
in
directors,
for an capacity
act or omission
of MICHAEL DWYER
available to limit the liability of nonprofit unless the decision or failure to decide Powell PC and member of its business
good faith, after reasonable inquiry,
the volunteer on behalf of the corpoand
directors.
constitutes gross negligence.
group, where
he national
focuses onbusinesses
all aspects comm
and without knowledge that reliance ration, subject to exceptions for will1. In its articles of incorporation, a nonAlthough that statute specifically does of corporate,reducing
real estatecancer’s
and commercial
impact on o
is unwarranted.
ful or criminal misconduct, gross
profit corporation may eliminate or limit not limit the liability of a director to the practice. He also is the secretary and
For
those of
duties,
a direcreckless
misconduct,
thebreach
personalofliability
a director
to the negligence,
nonprofit corporation
or its
members, theor general counsel of the Greater Seattle
tor may
be
held
personally
liable
to
a
flagrant
indifference
to
thethe
rights
corporation or its members for monetary nonprofit corporation may limit
liabil-or Chamber of Commerce. Reach him at
Inc.
thirddamages
party for
or the
corporation
itself
safety
of
the
individual
harmed.
conduct as a director that does ity of a director to the corporation and its 206.223.7057Amgen
or dwyerm@lanepowell.com.
for resulting injury or loss.
6. There are several insurance
Bayley
Construction
for web use with permission from the Puget Sound Business Journal. ©2009, all rights reserved. Reprinted by Scoop
ReprintSource
1-800-767-3263.
But,Reprinted
there are
a number of protecproducts that insure a nonprofit
Costco Wholesale Corporation
tions available to limit the liability of director against personal liability,
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