Indemnification Provisions – What Christian School Leaders Need to Know

Indemnification is a legal tool that protects school board members, as well as employees and sometimes volunteers, from the financial consequences of a lawsuit. It’s an important provision to have as part of a school’s bylaws. This article addresses what indemnification is, how it works, and offers some sample language to use as a starting point with your attorney.

The Purpose of Indemnification

Indemnification provisions, found within a school’s bylaws, are intended to protect individuals from legal defense costs as well as legal judgments arising out of the individual’s involvement in the school. However, indemnification provisions may not protect individuals when their conduct is criminal or if their decisions are not in line with a school’s bylaws or statement of faith.

Who Should Be Covered: The school will usually want to draft an indemnification provision to protect its leaders, including school board members, and employees. Some schools may also want to extend this protection to volunteers who are working on behalf of the school.

Who Should Not Be Covered: Indemnification provisions need to be carefully drafted so that the organization is able to avoid paying the legal expenses of individuals who are not furthering the purpose of the school, or who are acting outside of their authority. For example, the school would not want to be obligated to cover legal costs associated with sexual misconduct, physical assault, or theft that an individual admits to engaging in while working for the organization.

How Indemnification Provisions Interact with Insurance

Commercial liability policies cover defense costs and judgments associated with many types of civil lawsuits that are directed against a school, its leaders, employees, and volunteers. To the extent that the organization’s insurance policy covers such costs, there’s no need to indemnify the individuals who are protected by insurance. It’s only when insurance coverage doesn’t apply, or when costs exceed the limit of liability coverage stated in the policy, that out-of-pocket legal costs are incurred. For this reason, it’s a good idea to reference insurance coverage within the indemnification provision.

While such a provision can be valuable to the individuals being indemnified, it can be potentially costly to the organization, depending on the amount of out-of-pocket expenses incurred.

What Process Should Be Used to Grant Indemnification

Typically, it’s recommended that a school’s bylaws give the organization’s governing board the right to decide when and if an individual employee will be indemnified for out-of-pocket costs associated with a lawsuit. By incorporating this type of provision, board members are granted the discretion to assess whether the individual being sued was truly acting on behalf of the school and furthering the school’s purposes when the loss occurred. However, when an individual board member is sued in connection with his or her work on behalf of the school, it may be necessary for the remaining board members to decide if indemnification applies.

Reviewing School Bylaws

If an organization’s bylaws already include an indemnification provision, it’s recommended that a locally licensed attorney review the bylaws to ensure that school leaders maintain the right to decide when and if the indemnification obligation is triggered. If the organization’s bylaws do not contain an indemnification provision, then an attorney familiar with school governing documents should be consulted to develop indemnification wording, as well as to walk your school through the process of amending its bylaws.

It’s important that school leaders and board members review the organization’s existing bylaws and think through the indemnification process before a lawsuit is filed against the organization’s leaders, employees, or volunteers.

Sample Wording – Indemnification Provisions

Below are some sample indemnification provisions to share with your attorney as you begin drafting new provisions or amend existing ones.

Sample Indemnification Provisions for School Bylaws

INSURANCE COVERAGE AND INDEMNIFICATION OF SCHOOL LEADERS, BOARD MEMBERS, EMPLOYEES, AND VOLUNTEERS

SECTION 1. INSURANCE. The [Name of School] will purchase and maintain liability insurance on behalf of any and all persons who are or were a director, officer, leader, employee, committee member or volunteer of the School (while serving in their capacity as such). Such insurance will be purchased for the purpose of protecting such persons from covered loss resulting in liability asserted against the above individuals in connection with their activities on behalf of the [Name of School].

SECTION 2. INDEMNIFICATION REQUESTS. Should any director, officer, leader, employee, committee member, or volunteer of [Name of School] incur any liability as a result of their affiliation with or service to the School that is not covered by the School’s insurance policy, and should such liability result in any out-of-pocket cost to such individual, then such individual may request indemnification from the School. The granting of full or partial indemnification shall be at the discretion of the governing board of [Name of School] as set forth in Section 3 herein.

SECTION 3. INDEMNIFICATION DECISIONS. In relation to any indemnification request that is made pursuant to Section 2 herein, if such request is made by an individual who is not currently serving on the governing board of [Name of School], then the indemnification decision (whether to indemnify the requesting individual, and the dollar amount of such indemnification), will be made by the governing board. Such decision of the governing board will be final. If the indemnification request is being made by a person who is currently serving on the governing board, then the indemnification decision (whether to indemnify the requesting party, and the dollar amount of such indemnification), will be made by the remaining disinterested members of the governing board. A decision on the indemnification request by a majority of disinterested members of the Board of Directors will be final.

Posted August 16, 2023

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We encourage you to regularly consult with a local attorney as part of your risk management program.