Below is an except from Leslie T. White, CPCU, ARM, CIC, CRM, Croyden Consulting, LLC. on finding the right insurance for chapters and their associations. Download document for full article.
National and international associations often misunderstand the insurance exposures arising from their chapters as well as the chapters’ need for insurance. Chapters can get themselves into trouble and unintentionally involve the national association in a claim or public relations crisis. To most people the chapter is the organization so anything the chapter does reflects upon national. Local chapters are the face of your association to the general public, vendors, media and even local members. A classic example, a friend was considering a position with a national association that he did not know much about. A co-worker, a member of the association, sent him information about the organization all of which was about the local chapter, not the national organization. My friend still did not know much about the national association.
The chapter as association perception is held no matter what the chapter or affiliation agreement says about the relationship between the national body and chapters. Your agreement may state clearly that the chapter is a separate legal entity and not an agent of your association but that legal distinction is lost on others.
Chapters hold meetings, social events, may offer education sessions or a conference and even raise funds for the association’s foundation or an adopted charity. During these activities someone can get hurt, a member or an outsider, or the chapter can cause damage to another party’s property (damage to the hotel or restaurant). If the chapter has a board or governing committee there is the potential for allegations of mismanagement or improper governance.
So why should the national association worry about insurance and its chapters? Because no matter what the affiliation or charter agreement says, the national association can be brought into a liability claim.
When We are One
When chapters are the association, national will be held responsible for the actions of its chapters through the concept of vicarious liability. These chapters and their members are agents of the association with authority to act on behalf of the association which in turn will be held responsible for the chapter’s actions. In addition to vicarious liability, the injured party can allege the association was negligent in supervising or managing its chapters. When national and the chapters are “one” the association faces the double whammy of being responsible for the actions of its chapters and the association’s lack of proper oversight.
When We are Separate
Even when chapters are separate legal entities per an affiliation agreement, the association will still be involved in a claim. As a separate entity the chapter usually is not an agent of the association so the association is not vicariously liable for the chapter’s actions. But the association is not off the hook. The association will be named in the claim regardless of the chapter relationship – remember the public and injured party considers the chapter as the association. The association’s insurance company should defend the association including the costs of being excused from any legal action.
Another potential cause of action is the allegation that the association was negligent in its oversight or supervision of the chapter that resulted in the chapter’s misbehavior. The claimant will contend the association did not meet its standard of care in managing its chapters. The allegation will argue the association knew or should have known what the chapter was doing and if it had supervised its chapter properly the loss would have been prevented. This may be a factor if the chapter is violating any aspect of the affiliation agreement.
Regardless of the relationship with its chapters, national and international associations have loss exposures from their chapters. The association’s first goal is to ensure that its insurance program will protect it in the event of a claim involving a chapter. The second goal is to address the insurance needs of its chapters to protect both the chapter and the association.
Associations have lots of options for interacting with its chapters including how to address their insurance expectations and needs. Understanding and assessing your risks is the first step followed by implementing the appropriate risk management strategies. All associations with chapters have a direct liability exposure from its chapters. Additionally the association may be vicariously liable for its chapters’ actions. Your insurance professional can help you evaluate your exposures and insurance options to establish an insurance program that is best for your association and chapters.