Today, more than ever before, charities must protect themselves, their directors and officers from damaging lawsuits. Many of our nonprofit clients understand their liability risk and are doing something about it. One of the first things that should be done is to review the organization's Articles of Incorporation. This is important because the Articles of many nonprofits are out of date - they don't include liability limiting provisions. These provisions won't prevent a lawsuit from being filed against your organization and possibly your board of directors, but if one is filed, your officers and directors will be grateful.

Most state nonprofit corporation laws permit an organization to adopt provisions in its Articles of Incorporation eliminating the personal liability of a volunteer director (subject to certain exceptions), for certain kinds of risks. Although these laws will vary from state to state, most states also provide the same or similar legal immunity for the officers and/or volunteers of nonprofit corporations. Although some state law provisions automatically apply to all nonprofit corporations formed in that state, a significant number of states require that the immunity statute be expressly quoted or referenced in the organization's Articles of Incorporation to be effective for that organization.

Typically, directors and volunteers, to be protected by state law, must meet conditions similar to the following (among others):

1. He or she acted or reasonably believed he or she acted within the scope of his or her authority;
2. The volunteer was acting in good faith;
3. The volunteer's conduct did not amount to gross negligence or willful and wanton misconduct; and
4. The volunteer's conduct was not an intentional tort.

In addition, a volunteer typically is not protected against:

1. A breach of the director's or officer's duty of loyalty to the corporation;
2. Acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
3. A transaction from which the volunteer director or volunteer officer derived an improper personal benefit; and
4. An act or omission that is grossly negligent.

Ensuring that the immunity provisions of state law are applicable to your organization is not the total answer to protecting board members, officers and volunteers, however. A charity should supplement these provisions with D & 0 (directors and officers) insurance and provision for indemnification against certain kinds of legal expenses as allowed by state law. Annual board member training and obtaining appropriate waivers from other volunteers are all a part of a comprehensive plan to reduce the personal risk of liability for nonprofit volunteers and leaders.