Insurance for Foundations & Philanthropic Trusts

Understanding Insurance for Foundations & Philanthropic Trusts

Foundations and philanthropic trusts occupy a distinctive position in the not-for-profit sector. Unlike organisations that deliver services to communities directly, they typically operate behind the scenes — receiving and managing assets, making investment decisions, and distributing grants to frontline organisations. This profile — significant assets, consequential decisions, but limited public-facing activity — creates a governance-heavy insurance need. The Trusts Act 2019 modernised the legal framework for trusts in New Zealand and clarified trustee duties, including the duty of prudent investment. These duties have clear insurance implications for the individuals who serve as trustees.

Grant-making decisions are more legally consequential than many foundations appreciate. If a grant recipient can demonstrate that a funding decision was made unfairly, capriciously, or in breach of stated criteria, a legal challenge can follow. If a multi-year grant is withdrawn mid-cycle, the recipient may pursue recovery of costs incurred in anticipation of continued funding. Professional indemnity insurance covers the foundation's defence costs and any resulting damages for grant administration and decision-making activities. This cover is distinct from D&O (which covers governance decisions generally) and should be specifically structured for grant-making activity.

Financial crime risk is elevated for foundations and philanthropic trusts because of the volume and concentration of their financial activity. Business email compromise attacks — where fraudsters impersonate legitimate payees to redirect grant payments to fraudulent accounts — have affected New Zealand grant-making bodies in recent years. Crime or fidelity insurance provides cover for this type of fraud, as well as for internal dishonesty by employees or trustees. Given the significant financial flows through foundations and the relatively small team sizes that limit internal controls, crime cover is an essential component of a comprehensive risk management programme.

The reporting and compliance obligations of charitable foundations are more extensive than many trustees realise. Annual returns to Charities Services must be filed on time and accurately. Grant-making must comply with stated charitable purposes. And the Charities Act 2005 gives Charities Services significant enforcement powers — including deregistration, which has financial implications for tax status. Statutory liability insurance covers defence costs and fines arising from prosecution under legislation, providing a financial safety net for what can be unexpected and costly regulatory engagement even for well-governed organisations.