Can an Association Indemnify or Insure Its Committee Members?

Committee members who read the duties and offences in Part V naturally ask whether the association can protect them. Section 49 answers, and the answer is narrower than most rules drafted under the 1966 Act assume.

Definitions

Section 49(1) of the Associations Incorporation Act 2023 extends “committee member” to a former committee member, and defines “indemnify” to include “relieve or excuse from liability, whether before or after the liability arises”. A rule that purports to excuse committee members in advance from liability for negligence is an indemnity for these purposes, as is a resolution after the event to forgive a loss.

Criminal liability: never

An association cannot pay a committee member’s fine under section 44, section 163 or any other provision, nor agree to do so, nor reimburse it afterwards. Since the Act’s filing offences are committed by “every member of the committee”, this means each committee member bears his own fine for a late annual return. The association may, however, insure the costs of defending criminal proceedings in which the committee member is acquitted (section 49(4)(c)).

Civil liability: the default position and the rules

Section 49(3) provides that unless the rules provide otherwise, an association must not indemnify a committee member in respect of (a) “any liability to the incorporated association for any act or omission in his capacity as a committee member”, or (b) “any liability to any person arising out of a breach or violation of Sections 39, 41 and 44”, that is, unreasonable reliance on advice, an undisclosed material interest, or bad faith. The rules can therefore permit an indemnity for liability to the association, and even for the section 39, 41 and 44 liabilities, but only if the members have put it there by special resolution registered with the Registrar. Without such a rule, the association cannot forgive a committee member who has caused it loss. What the association may always indemnify, because section 49(3) does not mention it, is liability to third parties for honest acts as a committee member, such as a contract entered in good faith that exposes the signatory personally under section 19.

Section 49(5) makes any indemnity given in breach of the section void. A committee member relying on a non-compliant indemnity clause in old rules has nothing.

Insurance: permitted with committee approval

Section 49(4) provides that an association “may, with the prior approval of the committee, effect insurance for a committee member, officer or employee” in respect of (a) civil liability for any act or omission in that capacity (the section says “as a director or employee”, a drafting carry-over from the Companies Act), (b) costs of defending or settling any claim relating to such liability, and (c) costs of defending criminal proceedings in which they are acquitted. The approval must be prior, must be by the committee, and should be minuted; an insured committee member should not vote on the resolution to insure himself unless the rules permit it. Premiums are not remuneration for the purposes of section 29 or the volunteer shield (section 38(5)).

Interaction with the volunteer shield

For an unpaid committee member the question of indemnity for liability to the association rarely arises, because section 38(4) already provides that such a person is not liable to the association or its members for monetary damages except for an improper benefit, intentional harm, undisclosed interest or criminal conviction. Section 49 matters most for paid committee members, who have no shield, and for the excepted categories, which are precisely the ones section 49(3)(b) says cannot be indemnified without a rule. The two sections together mean that an association can shift the honest volunteer’s risk to an insurer, but cannot shift the dishonest or conflicted committee member’s risk to the association. See liability of committee members.

Public officers and employees

Section 49 speaks of committee members for indemnity and of “a committee member, officer or employee” for insurance. A public officer’s own liability is governed by section 58, which contains the same volunteer shield, and the association may insure the public officer under section 49(4). Employees may be insured but the Act does not regulate indemnities to them, which are governed by their contracts and the general law.