Limited Liability of Charitable Organizations

Does this limitation extend to officers and directors?

Church Law and Tax1994-03-01Recent Developments

Personal Injuries – On Church Property or During Church Activities

Key point: A few states limit the amount of money damages that can be collected against a church or other charity. However, these laws do not necessarily protect officers or directors who are sued personally.

The Supreme Judicial Court of Massachusetts ruled that a state law limiting the liability of charitable organizations to $20,000 does not apply to officers and directors of a charitable organization who are sued personally. A fire occurring on the premises of a nonprofit center for battered women and children killed two women. A lawsuit was filed against the charity that owned and operated the center. The lawsuit also named the four officers of the charity. Massachusetts law contains the following provision limiting the liability of charities to $20,000 in most cases:

It shall not constitute a defense to any cause of action based on tort brought against a corporation, trustees of a trust, or members of an association that said corporation, trust, or association is or at the time the cause of action arose was a charity; provided, that if the tort was committed in the course of any activity carried on to accomplish directly the charitable purposes of such corporation, trust, or association, liability in any such cause of action shall not exceed the sum of twenty thousand dollars exclusive of interest and cost. Notwithstanding any other provision of this section, the liability of charitable corporations, the trustees of charitable trusts, and the members of charitable associations shall not be subject to the limitations set forth in this section if the tort was committed in the course of activities primarily commercial in character even though carried on to obtain revenue to be used for charitable purposes. General Laws c. 231, sec. 85K.

On the basis of this provision, the court ruled that the charity that owned the center could not be liable for more than $20,000. The court observed:

Section 85K shields charitable organizations from tort liability in excess of $20,000 for torts committed in the course of any activity carried on to accomplish directly the charitable purpose of the organization. The purpose of the statutory limitation on damages is to protect the funds and other assets of charitable institutions so they may be devoted to charitable purposes. While we have expressed concerns about the paltriness of the $20,000 cap, we have sustained [it] against a variety of challenges. The statute must be given the scope intended for it by the legislature.

However, the court ruled that the charity’s officers could be sued personally. It observed: “[I]n our opinion, it is obvious that the provisions of [the statute] do not shield a trustee of a charitable organization from unlimited personal liability …. [The statute] which limits the liability of charitable corporations, as well as the liability of trustees of charitable trusts, does not purport to limit the individual liability of a charitable corporation’s officers of board members.” Morrison v. Lennett, 616 N.E.2d 92 (Mass. 1993).

See Also: Personal Liability of Officers, Directors, and Trustees | Negligence as a Basis of Liability – Defenses

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