NONPROFIT ORGANIZATIONS; LIABILITY, LEGAL;

You asked whether directors of nonprofit organizations are protected from liability for their actions as directors. Our office is not authorized to give legal opinions and this report should not be considered one.

SUMMARY

Any person serving without compensation as a director of a nonprofit organization qualified as a tax-exempt organization under the Internal Revenue Code is immune from civil liability for damage or injury resulting from any act, error, or omission made in the exercise of his policy or decision-making responsibilities, if he was acting in good faith and within the scope of his official functions and duties. The immunity does not apply if the damage or injury was caused by his reckless, willful, or wanton misconduct.

This statute offers a broad protection from civil liability but does not cover every nonprofit corporation director. For example, the law does not protect a director if he receives compensation for performing his duties. Nor does the law provide total immunity even for those who are covered. For example, it does not cover such activities as operating a motor vehicle while carrying out corporate duties or routine, non decision-making functions.

In addition to the protection afforded by the immunity statute, the legislature also protected nonprofit corporation directors by requiring the corporation to indemnify them in connection with legal actions against them in their capacity as directors. Indemnification provides formal financial protection for directors against expenses and liabilities they incur in connection with proceedings based on an alleged breach of some duty in their service to or on behalf of the corporation (CGS § 33-454a et seq. ).

A federal law enacted in 1997 grants those who perform volunteer work for nonprofit organizations or governmental entities immunity from civil liability for injuries they cause by their negligence while volunteering. It also requires clear and convincing evidence for punitive damages to be awarded against such volunteers and makes them liable for noneconomic damages (pain and suffering) only to the degree their wrongdoing caused the harm. The law preempts contrary state law but states can opt out of the law by passing an act explicitly doing so. Connecticut has not opted out of the law; thus it applies in Connecticut.

STATE IMMUNITY LAW

Any person serving without a salary or prorated equivalent basis as a director or officer of a nonprofit organization qualified as a tax-exempt organization under the Internal Revenue Code is immune from civil liability for damage or injury resulting from any act, error, or omission made in the exercise of the person's policy or decision-making responsibilities, if he was acting in good faith and within the scope of his official functions and duties (CGS § 52-557m). Tax-exempt organizations can include nonprofit corporations organized and operated exclusively for religious, literary, or educational purposes; to foster amateur sports; or to prevent cruelty to children or animals. They can also include fraternal beneficiary societies, orders, or associations.

The immunity does not apply if the damage or injury was caused by reckless, willful, or wanton misconduct (CGS § 52-557m). Thus the immunity is limited to acts of negligence. Negligence is doing something that a prudent and reasonable person would not do, or not doing something that a reasonable person would do under the same circumstances. The standard is an objective one. It focuses on what a person of ordinary prudence in the exercise of due care would have seen, believed, and done under the circumstances (Dokus v. Palmer, 130 Conn. 247; Weimer v. Brock-Hall Dairy Company, 131 Conn. 361; Connecticut Law of Torts, § 30).

Reckless, willful, or wanton misconduct describes conduct that is more culpable than negligence. It involves intentionally doing an act of unreasonable character, in disregard of a risk the actor knows of or in a disregard of a risk so obvious that he should have been aware of it. The risk is so great that it is highly probable that harm will follow. It usually includes a conscious indifference to the consequences amounting almost to a willingness that they should occur. It is conduct that amounts to an extreme departure from ordinary care, in a situation where a high degree of danger is or should be apparent. It is more than mere thoughtlessness, inadvertence, or simple inattention (Connecticut Law of Torts, § 61).

CGS § 52-557m offers a broad protection from civil liability but it does not cover every nonprofit organization's director or officer. For example, the law does not protect a director if he receives compensation in any amount for performing his duties. Nor does the law provide total immunity even for those who are covered. For example, it does not cover such activities as operating a motor vehicle while carrying out the organization's duties or routine, non decision-making functions.

FEDERAL VOLUNTEER PROTECTION ACT OF 1997 (P. L. 105-19; 42 USC § 14501 et seq. )

Scope of the Law

The act applies to any nonprofit organization that is exempt from federal income tax. It also applies to other nonprofit organizations that are organized and conducted for public benefit and operated primarily for charitable, civic, educational, religious, welfare, or health purposes.

Preemption and Opting Out

The act preempts state laws to the extent they are inconsistent with it. It does not preempt state laws that provide additional protection from liability. The act allows a state to opt out of the act's coverage if it enacts a statute that cites the federal act, declares that the state elects not to have the federal act apply, and contains no other provisions. If a state opts out of the federal act, it will not apply to any civil action in a state court against a volunteer in which all parties are citizens of that state. Connecticut has not opted out. Thus, the law applies to Connecticut volunteers.

Scope of Limitation on Liability

Under the act, no volunteer of a nonprofit organization or governmental entity can be liable for harm caused by his act or omission on its behalf if:

1. he was acting within the scope of his responsibilities at the time of the act or omission;

2. he was properly licensed, certified, or authorized by the appropriate authorities in the state where the harm occurred;

3. the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious flagrant indifference to the rights or safety of the person harmed by the volunteer; and

4. the harm was not caused by the volunteer operating a motor vehicle, vessel, aircraft, or other vehicle for which the state requires the operator or owner to possess a license or maintain insurance.

The act specifies that it does not affect (1) any civil action brought by the nonprofit organization or governmental entity against the volunteer or (2) such organization's or entity's liability with respect to harm a volunteer causes.

The law also specifies that a state law is not inconsistent with the federal act because it:

1. requires the organization or entity to adhere to risk management procedures including mandatory training of volunteers;

2. makes the organization or entity liable for the volunteer's acts or omissions to the same extent as an employer is liable for its employees' acts or omissions;

3. makes a limitation of liability inapplicable if the civil action was brought by a state or local government officer pursuant to state or local law; or

4. makes a liability limitation apply only if the organization or entity provides a financially secure source of recovery such as an insurance policy for those harmed by the volunteer.

Exemptions To Immunity

The act does not apply to any misconduct that:

1. constitutes a crime or act of international terrorism as defined by federal law for which the volunteer has been convicted;

2. constitutes a hate crime as defined by federal law;

3. involves a sexual offense as defined by state law for which the volunteer has been convicted;

4. involves misconduct for which the volunteer has been found to have violated a federal or state civil rights law; or

5. occurred when the volunteer was under the influence of intoxicating liquor or any drug.

Limitation on Punitive Damages

The act prohibits the award of punitive damages against a volunteer unless the person harmed establishes by clear and convincing evidence that the harm was caused by the volunteer's actions which constituted willful or criminal misconduct, or a conscious, flagrant indifference to the injured person's rights or safety.

Liability for Non-economic Loss

Under the act, a volunteer may be liable for non-economic loss allocated to him in direct proportion to the percentage of his responsibility for the harm. The act requires the trier of fact (jury or judge in a nonjury trial) to determine the volunteer's percentage of responsibility for the harm.

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