About Us

CLUB MATTER

February 2004

We live in a litigious society. In the past if parties had a dispute, they would try to solve their differences through conversation. But today many people feel that if they disagree with decisions or actions, they will sue.

Aren't we already covered?

We have been asked on many occasions by figure skating clubs why they should have directors and officers liability coverage. This provides protection for the club against allegations of “bad decisions” or “wrongful acts.” This coverage provides protection for issues not related to bodily injury or property damage.

Most clubs are managed by volunteers who offer their services with the understanding that these services will not bring them personal liability. If threat of lawsuits diminish contributions made by volunteers, the result is higher costs to replace these “volunteer” services with paid sources.

The club needs to provide protection to offset the problems created by the fear of lawsuits. The cost of insurance is less than the cost to defend an action levied against a club.

Many volunteers believe they are protected by the federal Volunteer Protection Act passed in 1997 or by their homeowners policy or a personal umbrella liability policy. While in some cases this may be true, these policies do not always provide protection. Great care should be taken on an individual basis to determine what, if any coverage exists under these policies.

Examples of previous claims

The strongest argument for purchasing directors and officers liability coverage rests with the costs to defend these actions. Appropriate legal defense can cost anywhere from $150 to $350 per hour. The average action, even if the allegations are false, can result in 50 or more attorney billable hours. These costs can escalate if expert witnesses are needed or if further investigation necessitates hiring private investigators.

Here are some examples of claims that have occurred in the past:

• Wrongful discipline and deprivation of career opportunities. A club has an employed coach. Many verbal complaints have been made against the coach for his coaching style and interaction with his students. The club's board dismisses the coach and rumors surround his dismissal.

The club did not conduct its due diligence before dismissal by interviewing many parties to determine if the complaints were valid. The coach files suit alleging his dismissal was unwarranted and that his reputation has now been irreparably impaired. The cost to defend this action was more than $25,000, and damages were awarded to the coach.

• Failure to renew membership. A family with two children skating has a membership with a club. One parent is vocal and according to club members, disruptive. The board decides not to renew the family's membership in the club. The family files suit alleging that the club cannot deny membership. The cost to investigate and defend this action was more than $16,000. Ultimately the club agreed to extend membership, and the case was dismissed.

• Failure to conduct due diligence regarding authority. A club's treasurer has sole signature authority for it's checking account. Over several months, he embezzles more than $40,000 of club funds then disappears. Upon investigation it is determined that in the past he had been accused of misappropriation of funds with another organization (although not formally charged). An action is filed against the club for failure to conduct a background check on someone with access to funds, and for allowing him sole signature authority.

• Jeopardizing nonprofit status. A club decides to sell novelty items at their events, including T-shirts, coffee mugs and key chains with their name on it. In their jurisdiction, they are required to collect sales tax (and have a permit to do so). They do not collect sales tax and receive notification from the Internal Revenue Service that their nonprofit status is in jeopardy. They owe almost $10,000 in fines. An action is filed against the board for failure to comply with IRS rules and regulations. The cost to defend this action was approximately $8,000.

Lawsuits, or even threats of lawsuits, can be stressful to those involved. When a club does not have liability insurance, the responsibility of retaining competent and knowledgeable legal counsel falls directly on the club. And all costs for that defense become either the burden of the club, the individual board members or volunteers.

When a club has directors and officers liability coverage, the insurance carrier will assist in selecting counsel and the payment of fees when a lawsuit or threat occurs. It becomes a prudent decision for the club to protect itself, its volunteers and its assets to the best of its ability.

Just as you purchase automobile insurance and home insurance to p rotect your property, directors and officers liability insurance protects your club and your volunteers' personal assets.

Trish Beyer is director of amateur sports for Entertainment & Sports Insurance.