Actions Upon Potential Arrest of a Senior Leader at a Community Foundation
Developed for the Council on Foundations by Christopher J. Armstrong, Partner at Holland & Knight
In the event that a senior leader of a community foundation or similar organization is arrested at a First Amendment protected protest, preparing for an immediate response is essential to understanding next steps, evaluating potential bail restrictions on the use of tax-exempt nonprofit funds, and implications on directors and officers insurance (D&O).
Overall, a senior leader that protests in their official capacity in a legal manner in accordance with First Amendment protections can likely receive bail support from a tax-exempt nonprofit. There are limitations if the official protesting is in an individual capacity and/or if the leader acts in an illegal manner. D&O insurance typically defers to the organization as to whether the act was in the person’s official or individual capacity. If the organization indemnifies, the insurance carrier will typically provide coverage.
Actions Upon a Potential Arrest of a Senior Leader
Evaluating the Use of Tax-Exempt Nonprofit Resources for Bail Support
Following an arrest of the CEO, Board Chair, or other senior leader it is key to gather the facts of the circumstances surrounding the arrest, because certain factors will determine whether an organization can provide bail support and whether their D&O insurance can apply. The central question for both considerations is determining whether the senior leader or official was protesting in a personal or professional capacity on behalf of the organization.
If a senior leader or official is acting in an individual capacity in a protest, then there will likely be no coverage from the nonprofit organization’s resources. Meanwhile, if the senior leader is acting in their official capacity, then their actions must be assessed to ensure they were acting in a legal manner. First Amendment activity is protected, but to the extent that the senior leader or official acted outside of constitutionally protesting, it may constrain the ability of the nonprofit to support the official. A senior leader that protests in their official capacity in a legal manner in accordance with First Amendment protections can likely receive bail support from the tax-exempt nonprofit. However, to the extent that an organization supports illegal activities, it could lead to a loss of its tax-exempt status.
Each organization should judiciously analyze the capacity their leaders are acting in and determine whether they participated in activities that are not protected by the First Amendment. To ensure that a senior leader’s conduct is considered part of the expected duties of an official, an organization may consider having their board adopt a resolution clarifying protesting, and all other First Amendment activity, as part of the official role.
Directors and Officers Insurance Implications
For D&O coverage, it is a similar analysis to discretionary indemnification through the organization’s bylaws. The insurance carrier will typically defer to the respective organization as to whether the act was in the person’s official capacity as a director or officer of the organization or if it was in the individual’s personal capacity. If the organization indemnifies, the carrier will typically provide coverage. Meanwhile, if the organization refuses or fails to indemnify, then the carrier will likely deny coverage based on the organization’s decision.
If the organization denies indemnification, the director or officer can attempt to fight the organization’s decision and try to get coverage under provisions of the policy. Under that circumstance, the burden shifts to the carrier to determine in what capacity the individual was acting. If there is coverage, the carrier will typically cover defense costs in a criminal matter (including bond payments) unless/until the person is convicted. However, some policies have limited criminal defense coverage.
