Second Assembly Church has a deacon board of six members.  The next-door neighbor of the church claims the church van destroyed her prize-winning petunias and is sueing the church board for negligence.  She is demanding $2000.

Are the board members responsible for their own attorney’s fees?  Do they each have to pay a portion of the settlement if the church is found responsible?

Unfortunately, we live in a time in which people would rather sue each other than reasonably work out differences.  Church leaders and board members are often the targets of litigation when those differences involve a church. 

There are steps you should take BEFORE a lawsuit occurs.

in·dem·ni·fi·ca·tion

noun

1. compensation for harm or loss.

   "the plaintiff sought indemnification for the cost of the suit against the corporation"

2. security against legal liability for one's actions.

   "whistleblower protection is indemnification for individuals who are dismissed as a result of reporting a violation"

Every church should adopt Indemnification Provisions to protect board members.

Why Should Churches Include Indemnification Provisions in their bylaws?

Clear Legal Framework:

Having indemnification provisions in the bylaws provides a clear, formal, and binding agreement regarding how the church will handle situations where a board member might face legal action. This ensures that everyone understands their rights and obligations ahead of time.

Protection for Board Members:

By including indemnification in the bylaws, the church can explicitly protect its leaders from personal financial loss due to lawsuits arising from their duties. This can be crucial in encouraging qualified individuals to serve on the board without fear of being personally liable for decisions made in good faith.

Fulfills Fiduciary Duty:

Board members are expected to act in the best interest of the church and uphold a fiduciary duty. Indemnification provisions, when properly outlined in the bylaws, ensure that board members are protected from legal challenges, provided they act responsibly and in good faith. This promotes proper governance and oversight without fear of personalliability.

Consistency and Transparency:

Having indemnification provisions in the bylaws creates consistency in how indemnification is handled and ensures that all board members understand the circumstances under which they will or will not be protected. This transparency is important for preventing misunderstandings or disputes inthe future.

What Should Be Included in the Indemnification Provisions?

When churches do include indemnification provisions in their bylaws, they should address key points, such as:

Scope of Indemnification: Specify what actions are covered by indemnification (e.g., decisions made in good faith in the best interest of the church) and what is excluded (e.g., acts of gross negligence or criminal activities).

Types of Claims Covered: Clearly outline the types of legal claims that will be covered, such as those related to fiduciary duties, contractual obligations, or employment issues.

Legal Costs and Defense: Specify whether the church will provide legal defense for board members facing lawsuits and cover associated legal fees, even before the lawsuit's outcome (i.e., advancement of legal costs).

Exclusions: Be clear about any exclusions, such as fraud, criminal conduct, or actions taken outside the scope of official duties.

Insurance: Mention if the church will have Directors and Officers (D&O) insurance in place to cover the indemnification costs. This can help reduce the financial burden on the church in case of a claim

Example of an Indemnification Provision in Church Bylaws:

"The Church shall indemnify and hold harmless each member of the Board of Directors and officers from any claims, suits, or proceedings arising out of the performance of their duties as long as such actions were taken in good faith and in a manner reasonably believed to be in the best interest of the Church. Indemnification shall not apply in cases of gross negligence, willful misconduct, or criminal activity. The Church shall provide legal defense for Board members when facing claims within the scope of their duties, and the Church may maintain Directors and Officers (D&O) Insurance to cover these indemnification obligations."

While indemnification provisions are not a legal requirement for churches, including them in the church’s bylaws is a best practice that provides significant protection for board members and leaders.  

It helps mitigate the risks of personal liability, encourages qualified individuals to serve, and supports sound governance practices. Churches should carefully consider consulting with legal professionals to draft appropriate indemnification provisions and review the church’s bylaws to ensure they align with best practices for non-profit governance and legal protections.