This case study is an anonymised composite based on publicly reported commercial insurance claim patterns. It is not actual Apex client data and does not constitute legal or insurance advice. Names, locations and identifying details have been changed. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.
A long-established UK-registered charity providing housing-related support services to vulnerable adults across the South West, around 120 staff, annual income £8.6m of which approximately 75% derived from contracts with local authorities and the NHS. Governance is a board of nine trustees who are also directors of the charity’s corporate structure (a charitable company limited by guarantee). The charity holds a combined charity policy including trustee D&O cover with a £3m limit, professional indemnity, public liability and a regulatory defence extension.
Following a whistleblower complaint to the Charity Commission alleging financial irregularities relating to senior executive remuneration, related-party transactions with a trustee’s business interests, and inadequate financial controls, the Commission opened a statutory inquiry under section 46 of the Charities Act 2011. The inquiry was the most intrusive form of Commission engagement and attracted significant trade press attention.
The factual allegations focused on three areas. First, the chief executive’s salary and benefits package had increased substantially over a four-year period without clear board oversight, and certain elements (a car allowance, private healthcare for family members, and a long-term incentive plan) had not been disclosed in the charity’s published accounts in the standard form required by the Charities (SORP) FRS 102. Second, a property leased by the charity from a company controlled by one of the trustees had been let on terms that an independent benchmarking exercise (commissioned by the inquiry) found to be approximately 18% above market rate over a five-year period. Third, the financial controls around grant expenditure had not consistently met the standards set out in the charity’s own financial regulations, with several instances of expenditure exceeding delegated authority limits without subsequent ratification.
The inquiry’s preliminary report, published approximately fourteen months after opening, identified governance and financial control failings and required a comprehensive remediation programme. The Commission did not exercise its statutory powers to remove trustees, but the report identified the chair and two named trustees (including the trustee with the property interest) as bearing particular responsibility for the failings.
Three civil claim pathways emerged in parallel with the Commission inquiry.
First, the charity itself, through a new chair appointed during the inquiry, considered a recovery claim against the named trustees for breach of duty under section 174 of the Companies Act 2006 (the duty to exercise reasonable care, skill and diligence) and under section 171 (the duty to act within powers). The claim was assessed at approximately £640,000 covering the over-market rent paid to the trustee-related company, a contribution towards the remediation costs of the inquiry, and recovery of certain expenditure that exceeded delegated authority.
Second, two of the local authority commissioners holding contracts with the charity intimated potential claims for return of grant funding that had not been used in accordance with the relevant grant agreements. The pleaded loss was approximately £180,000 in aggregate.
Third, the chief executive, whose contract had been terminated during the inquiry, intimated an employment tribunal claim including unfair dismissal and breach of contract, with pleaded loss of approximately £140,000.
The combined charity policy’s trustee D&O cover engaged on the personal-capacity exposure of the trustees in respect of the charity’s potential recovery claim and the Commission inquiry. Notification was made within ten working days of the opening of the inquiry — somewhat later than ideal because the trustees had initially treated the inquiry as a corporate matter for the charity rather than a personal exposure for themselves, an error common in this category of claim.
The D&O cover responded under Side A (non-indemnifiable personal liability) on the charity’s recovery claim against the named trustees, providing defence and indemnity subject to the £3m limit and a £25,000 aggregate excess. The named trustees were represented by specialist trustee defence counsel separate from the solicitor representing the charity itself. The recovery claim was settled at approximately £280,000, paid through the D&O cover, after extended negotiation that took account of the trustees’ specific roles, the chair’s overall responsibility and the property-interested trustee’s particular contribution to the over-market rent issue.
The regulatory defence extension responded to the costs of representing the trustees in the Commission inquiry, including the production of evidence, attendance at meetings, and the response to the preliminary report. Defence costs in this workstream totalled approximately £180,000.
The professional indemnity section of the policy responded to the local authority commissioners’ grant recovery claims on the basis that these arose from the charity’s provision of regulated services. The PI section had a £2m limit and the £180,000 of grant recovery claims settled within that cover.
The employment tribunal claim from the former chief executive was handled under a separately placed employment practices liability (EPL) policy that the charity held at a £1m limit; the claim settled at approximately £85,000 at conciliation.
Total cover response across all sections was approximately £730,000.
The charity continued to operate throughout the inquiry and the subsequent remediation period. Two of the named trustees resigned following the inquiry’s preliminary report; the third (the property-interested trustee) had already resigned earlier in the inquiry. The chair and one additional new trustee were appointed during the inquiry from outside the charity’s previous network, supported by a search firm engaged to broaden the trustee pool. The chief executive’s successor was appointed approximately nine months into the inquiry.
The combined charity policy renewed at the next renewal with a 65% premium increase and a £1m sub-limit on the regulatory defence extension. The D&O limit was maintained at £3m with a £50,000 aggregate excess. The PI section was renewed with strengthened terms including a specific exclusion for liabilities arising from related-party transactions not properly disclosed.
The Charity Commission’s final inquiry report, published approximately twenty months after opening, was substantially aligned with the preliminary report and confirmed the remediation programme. The charity’s contractual relationships with the local authority commissioners were preserved through proactive engagement and contract renegotiation.
Trustee D&O exposure in the charity sector has increased materially over the past decade and the cover has become correspondingly more important. First, trustee D&O cover should be a standard inclusion on any charity insurance arrangement and the limit needs to reflect the realistic cost of multi-strand regulatory and recovery exposure — £3m is the floor for any substantial charity, with £5m or more appropriate for charities of significant scale. Second, the regulatory defence extension is essential for any charity subject to Charity Commission oversight; the costs of inquiry response are significant and continuing. Third, related-party transactions are the single most common source of trustee exposure in the sector; the Charities (Protection and Social Investment) Act 2016 requirements on related-party benefits should be embedded in trustee training and trustee meeting practice. Fourth, prompt notification to the insurer on opening of a Commission inquiry is essential — the inquiry is a personal exposure for trustees, not just a corporate matter for the charity. Fifth, employment practices liability cover for senior executive separation is increasingly a standalone product rather than a combined cover extension.
We would have reviewed the D&O cover wording at the previous renewal, paying particular attention to Side A coverage and the regulatory defence extension. The related-party transactions exposure would have been identified at renewal as a known charity sector risk requiring trustee-level engagement. At notification, we would have ensured the trustees were aware that the Commission inquiry was a personal exposure requiring personal-capacity notification, not merely a corporate notification — the delay in this matter was a function of the trustees’ (entirely reasonable) initial assumption that the inquiry was a charity matter rather than a personal one. We would also have coordinated the engagement of trustee defence counsel separately from the charity’s corporate solicitor, recognising the divergence of interests that emerges in matters of this kind.
For the underlying cover, see our Charity & NfP insurance hub.
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