Nonprofit directors often ask if they can be held personally liable for their board actions. The somewhat unsettling answer is probably not, but maybe. In other words, state statutory immunity and indemnification protections generally apply to a volunteer director’s misconduct, but subject to certain exceptions for misconduct. More specifically, a director may have heard that he or she may be personally liable for “gross negligence” or “intentional or reckless misconduct.” What do these terms mean? The following guidance addresses how nonprofit laws define the type of misconduct that triggers personal liability for volunteer directors and discuss additional safeguards such as indemnification and directors’ and officers’ insurance.
Willful or Wanton Conduct – Explained.
Most states’ statutes provide a limited level of immunity for volunteer directors serving on nonprofit boards. By way of background, directors and officers owe fiduciary duties of care, loyalty, and obedience to the corporate mission. Under these statutory provisions, a director will not be personally liable for damages resulting from their actions carried out in furtherance of such fiduciary duties, so long as these actions do not rise to a certain level of misconduct. This level is often described as “gross negligence” or “reckless misconduct.” The Illinois General Not-for-Profit Corporation Act (the “Act”) uses the classic legal phrase “willful or wanton conduct.” The federal Volunteer Protection Act (“VPA”), which protects volunteer directors at the federal level, uses similar language. (Notably, a lower legal standard of “ordinary negligence” typically applies to paid directors and officers, so payments of stipends or other modest compensation may likely be inadvisable.)
So, what exactly does “willful or wanton conduct” mean? Willful or wanton conduct means a course of action which either “shows an actual or deliberate intention to cause harm” or which, “if not intentional, shows an utter indifference to or conscious disregard for the safety of others or their party.”