Volunteer directors of a Stoney Creek charity learned their coverage had gaps

The situation

Dov had joined the board of a small community organization in Stoney Creek almost by accident, agreeing to fill a vacant treasurer seat after a friend asked him to help out for a year. Six years later he was still there, working alongside Baruch, a longtime board member, and Abena, who had joined more recently to run the organization's small grants program. Between them they ran a charity with a modest annual budget, somewhere in the range of half a million dollars a year, supporting local programming with a mix of grant funding and community donations.

None of the three were paid for their board work. Dov spends his days running a bakery a few blocks from where the organization's programming happens; Baruch drives transit routes for a living and fits board meetings in around his shifts. The organization's day-to-day operations were handled by a small staff, but governance decisions, budget approval, and oversight of the grants program ran through the volunteer board.

Like a lot of small not-for-profits, the organization operated on documents it had inherited rather than built. Its bylaws, including the section describing when and how the organization would indemnify its directors for costs arising from their board work, had been drafted when the organization first incorporated and had not been substantively reviewed since. Everyone assumed the coverage was standard and adequate because nobody had ever needed to test it.

That assumption broke when a dispute over a grant decision escalated into a formal claim, and the claim named Dov, Baruch, and Abena individually as directors, alongside the organization itself. Suddenly the question of whether the bylaw actually protected them, and whether the organization's insurance would advance their legal costs while the claim was ongoing rather than only reimburse them after the fact, was not theoretical anymore.

Dov remembers the moment he opened the letter naming him personally and realized he did not actually know the answer to a question he had never thought to ask: if this went badly, could the organization lose its house, its car, its savings, over a decision the board had made collectively and in good faith. Baruch, who had sat through more board meetings than either of the other two, had always assumed the organization's insurance would simply handle anything like this. Abena, newer to the board and running the grants program that was now at the centre of the dispute, felt the weight of it most directly, since the claim traced back to a decision her committee had recommended.

The legal problem

Directors of a not-for-profit corporation can be exposed to personal liability for decisions made in their board role, which is exactly why indemnification provisions exist: they let the organization commit, in its bylaws, to cover a director's reasonable legal costs and any resulting liability arising from acting in good faith within their role. But an indemnification bylaw is only as good as its drafting and as good as the insurance sitting behind it, and both of those things need periodic review as an organization grows and its risks change.

When we read the organization's bylaw, the core problem was timing. The clause promised to indemnify directors for costs and liabilities they incurred, but it was written in a way that suggested reimbursement would happen after a matter concluded, rather than committing the organization to advance defence costs as they were incurred. For three volunteer directors facing a live claim, that distinction mattered enormously. A promise to reimburse eventually does not help someone who needs to retain a lawyer now.

We also asked to see the organization's insurance policy, the directors and officers coverage that is meant to sit behind a bylaw like this. It had been purchased years earlier through the organization's first advisor, an accountant who had recommended a policy without closely reviewing what the bylaw actually promised or what kinds of claims the organization's activities were likely to generate. The policy's coverage limits had not been revisited as the organization's budget and grant activity grew, and one exclusion in the policy was broad enough that it could plausibly be read to exclude exactly the kind of grant-decision dispute the directors were now facing.

So the directors were in an uncomfortable position: a bylaw that did not clearly require the organization to advance their costs, and an insurance policy whose coverage for this specific claim was genuinely uncertain. Fixing the immediate claim required understanding both pieces at once, not treating the bylaw and the insurance as separate problems.

There was a further wrinkle worth naming plainly. Indemnification protects a director acting honestly and in good faith within the scope of their role; it is not a blanket shield regardless of conduct. Part of our review had to confirm, honestly, that the grant decision at issue had in fact been made through the board's normal process, with appropriate disclosure and no personal benefit to any director, because a bylaw and a policy are only useful if the underlying conduct actually qualifies for the protection they offer. Here it did: the decision had gone through the grants committee, been discussed at a regular board meeting, and reflected the kind of judgment call a not-for-profit board makes routinely, not something reckless or self-interested.

What we did

1. Reviewed the existing indemnification bylaw line by line. We needed to know exactly what the organization had actually promised its directors, rather than what everyone assumed, because a claim was already active and there was no time left to guess. We identified the specific language that left advancement of costs ambiguous, so the board could see precisely why relying on it in the middle of an active claim was risky rather than simply reassuring in the abstract. That gave the directors a concrete list of gaps instead of vague unease.
2. Read the insurance policy against the bylaw. A bylaw promise is only as good as the coverage standing behind it, so we compared what the policy actually covered, and excluded, against what the bylaw promised the directors. We flagged the specific exclusion that put coverage for the current claim in doubt, so the board understood the gap in concrete terms rather than general unease, and had a precise problem to solve with its broker rather than a diffuse worry.
3. Advised the three directors on their immediate position. Dov, Baruch, and Abena needed to know where they personally stood before any bylaw or policy could be fixed, so we explained what advancing versus reimbursing legal costs actually means in practice. That distinction mattered because reimbursement after the fact does nothing for a director who needs to retain a lawyer now, and it helped the three of them understand what they could reasonably ask the board to commit to while the claim was still live.
4. Negotiated interim cost advancement with the board. The rewrite of the bylaw would take time the live claim did not have, so we worked with the board as a whole, not just the three named directors, to close that gap immediately. We secured a board resolution committing to advance reasonable defence costs for the pending claim, which meant none of the three had to fund their own defence out of pocket while the underlying documents were still being repaired.
5. Rewrote the indemnification bylaw. The ambiguous after-the-fact wording was the root cause of the whole episode, so it had to be replaced rather than patched. We drafted clearer language obligating the organization to advance defence costs as they are incurred for directors acting in good faith, with appropriate conditions, so future directors would not face the same uncertainty Dov, Baruch, and Abena had just been through.
6. Reviewed the directors and officers policy with the organization's insurer. A rewritten bylaw is only useful if the insurance behind it actually matches, so we raised the coverage gap directly with the broker rather than leaving it for the next renewal cycle. We worked through renewal options that better matched the organization's current size and activities, including clarifying the scope of the exclusion that had caused the original uncertainty, so the same ambiguity could not resurface at the next claim.
7. Set a recurring review cycle. The original gap had opened because nobody had reason to revisit either document for years, so we built a fix that would not depend on memory. We recommended the board review both the indemnification bylaw and the insurance coverage together every few years, or whenever the organization's budget or activities changed materially, so the two documents would not drift apart again the way they had the first time.
8. Documented the board's decision-making process for the disputed grant. Indemnification depends on directors having acted in good faith and within their role, so the protection is only as strong as the record showing that they did. We helped the board pull together the minutes, committee recommendations, and disclosure records showing how the original grant decision had actually been made, so that record was ready if the claim proceeded further and gave Abena, in particular, something concrete to point to.

The outcome

The board resolution to advance costs gave Dov, Baruch, and Abena the practical protection the original bylaw should have provided from the start. None of the three had to carry the claim's legal costs personally while it was resolved, and the underlying grant dispute was ultimately settled by the organization without a finding against any of the directors individually.

The rewritten bylaw now commits the organization clearly to advancing defence costs for directors acting in good faith, which removes the ambiguity that made the original claim so stressful for three people who had volunteered their time expecting the organization to have their back. The renewed insurance policy closed the exclusion that had put the original claim's coverage in doubt, and its limits now better reflect the organization's actual size.

Dov said afterward that the hardest part of the whole episode was not the claim itself but the uncertainty in the weeks before the board resolution, not knowing whether the organization could or would step in. That gap is now closed. The board also changed how it selects professional advisors going forward, asking for a specific legal review of governance documents rather than relying on a single advisor to cover accounting and legal questions together, which is what had let the original gap go unnoticed for so long.

Abena, who had felt the most exposed given her role on the grants committee, said the documented record of how the decision was actually made ended up mattering as much to her peace of mind as the bylaw and insurance fixes combined. Knowing there was a clear, contemporaneous record showing the board had followed its own process gave her something concrete to point to, rather than having to rely on memory or good faith alone if anyone asked about it again.

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