Pitch In, Get Sued

Maybe it's guilt. Maybe it's genuine charity. No matter. At this point in an economic cycle, with the stock market up and people working and feeling well off, volunteerism tends to get a lift as those with good fortune seek to give back to their community. Incredibly, though, some volunteers find out too late that they are grossly underinsured and, after a lawsuit, must give back way more than they had planned. Consider the unhappy plight of four volunteer directors for the St. Thomas Irish Channel Consortium, which sponsors social programs in New Orleans. The group's board authorized purchase of directors' insurance, but no one followed through. Today the group is in court over a wrongful-termination claim, and board members may be personally on the hook for total damages of more than $100,000.

It's no isolated case. Little League coaches in Runnemede, N.J., settled a suit for $125,000 after a fly ball injured an outfielder. In Stillwater, Okla., Karl Oltmanns, 68, a volunteer civic-group treasurer, paid $43,000 out of pocket to settle a funds-mismanagement case after his organization inadvertently let its directors' insurance lapse. On the nightmare chart, such cases rival a date with Freddy Krueger.

Indeed, the fear of being sued and having personal assets at risk is one reason that more people don't volunteer. In a Gallup study, 10% of all nonprofit groups cited liability concerns as the reason for losing one or more members. I happen to know such a person, and recently I undertook a thorough examination of my liabilities in connection with my role on the board of a community swim club.

The good news (for me, anyway) is that I'm covered. Moreover, new laws provide volunteers with the most comprehensive safety net yet. Last year, in the spirit of Colin Powell's summit on volunteerism, Congress passed the Volunteer Protection Act providing immunity for Good Samaritans so long as their conduct is not criminal or does not constitute "gross negligence." So, if someone trips and burns on your grill at the church barbecue, the law protects you. Just don't stick his hand in the fire.

Predictably, there are murky areas. Setting up the grill near an obstacle course, for example, could be seen as gross negligence. And don't forget, even if you are blameless, you can be sued and incur legal expenses. So before giving your time to a community board--and especially if you are affluent and perceived to have deep pockets--be sure you are insured. Your biggest risk is that an organization run by volunteers busy with their own lives will simply neglect to renew coverage.

Check on that first. A small charitable or civic group should have general-liability insurance of $3 million to $5 million and directors' and officers' insurance of $1 million to $3 million. Your second line of defense is your homeowner's policy, which typically protects you up to $500,000. Beyond that, you should have a personal umbrella policy of at least $1 million. The umbrella policy is key because it protects you from a wider range of mishaps than simple homeowner's insurance does. When reviewing your policy, take a close look at the section on exclusions. Does it cover losses stemming from your role on a civic board? If not, find another insurer and get a letter stating that you're covered. It's one thing to willingly give your time, and quite another to be forced to give your money.