What you need to know about contractual liability

Contractual liability is what happens when a charity agrees to take on responsibilities or obligations that go beyond what the law normally requires. A common example is an indemnity clause — where a charity promises to protect another party from losses, even if the charity itself wasn’t at fault.

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At first glance this can feel like a reasonable promise to make, especially when working with trusted partners. But these clauses can create risks that your insurance won’t cover. That’s because most public liability and professional indemnity policies only apply where there’s actual negligence or a breach of duty. If a charity agrees to take on more than the law requires, it could fall outside the safety net of its policy.

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In short: if your insurance wouldn’t have covered it without the contract, it probably won’t cover it with the contract either.

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It’s an easy pitfall, even for well-run organisations, particularly when contracts are checked for delivery and compliance but not for hidden financial risks.

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To help, Access Insurance (Chartered Insurance Brokers to the third sector) have created a straightforward guide for NAVCA members. It’s designed to help senior decision-makers spot contract clauses that could leave charities with costs their insurance won’t cover.

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NAVCA members can download the guide by logging into the Member Hub.

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If you’re part of a local VCSE organisation, ask your NAVCA member to share it with you. Find your local NAVCA member here.

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