Oct 25 2022

The Charitable Cap: When It Applies, Who It Protects and Why It Matters

When a personal injury lawsuit is brought against a charitable organization, significant emphasis is placed upon evaluating whether the organization is legally liable for the injuries and the extent of the injuries resulting from the accident.  Although liability and damages considerations are critical to any lawsuit, it is also important to evaluate any statutory defenses which might be available to the non-profit business. 

A particularly compelling defense that is available to charitable organizations is a cap on damages that insulates the organization from exposure above a certain cap that is set for a particular jurisdiction.  In Massachusetts, charitable associations are not liable for more than $20,000.00 in damages for injuries in tort (such as a negligence action for bodily injury) caused by the organization while engaging in its charitable activities.  See M.G.L. c. 231 § 85K.  This cap, and similar caps in other jurisdictions, present a critical defense for the non-profit; regardless of whether the non-profit is completely at fault for the accident, and irrespective of the injuries and damages sustained, the non-profit will not face exposure for more than $20,000.00 in damages. 

PROTECTION OF THE CHARITABLE CAP

In defending a charitable organization, it is critical to evaluate whether the cap is available, as the defense is not available for every claim involving a non-profit.  To come within the scope of G.L. c. 231, §85K, an organization must establish the following three elements: (1) the corporation, trust or association is a charitable organization; (2) the organization’s stated charitable purposes are actually being carried out for the benefit of the public at large or for some indefinite class of persons; and (3) the alleged tort was committed in the course of an activity to accomplish directly the charitable purpose of the corporation. Mason v. Southern New England Conference Association, 696 F.2d 135, 139 (1st Cir. 1982).

  1. Charitable Organization

The first relevant issue is whether the company is in fact a charitable organization.  Absent evidence to the contrary, a corporation’s organizational document is prima facie evidence that it is a charity entitled to the section 85k limitation on damages. Conners, 439 Mass., 789 N.E.2d (2003). Additionally, an organization’s tax-exempt status under 26 U.S.C. section 501(c)(7) supports a finding that it is a charity within the meaning of section 85k. New Eng. Legal Foundation v. City of Boston, 423 Mass. 602, 610 (1996). Although it is necessary to submit evidence that affirmatively proves that the business is a non-profit, this issue is typically not a point of contention. 

  1. Accomplishing Charitable Purposes

After a corporation successfully establishes that it is a charitable corporation within the meaning of section 85k, it must then demonstrate that “the tort was committed in the course of any activity carried on accomplishing directly the charitable purposes of such corporation.”  G.L. c. 231, s. 85k; Conners, 439 Mass. 469, 479. For example, assume someone who was attending a church service tripped on stairs leading into the church.  Such an accident would clearly be one in which the underlying "charitable" purpose of the church (offering spiritual services for its members) was being accomplished such that the application of the cap would be warranted. 

  1. Commercial Activities

A frequent point of contention regarding the application of the charitable cap arises when an accident occurs during a revenue-generating activity.  If someone is injured during an event that serves a “primarily commercial” purpose, the organization undertaking such activities will not be entitled to the liability cap under section 85k. Id., at 479-80.

It is not uncommon for an accident to occur in connection with an activity that generates revenue for the charitable organization, so the mere fact that the activity generates revenue will not disqualify the organization from receiving the benefit of the cap.  If the activity is a “money-making enterprise merely designed to keep the charity afloat” or is “primarily commercial” in nature, the liability cap will not apply. Id.  On the other hand, if an activity generates revenue during an event that advances one of the charity’s stated purposes, it may still qualify as “accomplishing directly the charitable purpose” of the organization undertaking it. See Kurtz v. Kripalu Ctr. for Yoga & Health, Inc., 3:17-CV-30109-KAR, 2019 WL 454594 at *12(D. Mass. Feb. 5, 2019) (operating paid-for yoga retreats part of charitable mission despite the retreats funding the charity).

Returning to the earlier example of a church, assume the church has a picnic to raise money, and the theme of the picnic is to encourage young people in the church to participate more actively.  People are charged to attend the picnic, and there are several speakers who promote youth involvement in the church.  If someone is injured at this event, the cap would almost certainly apply; even though the accident occurred during a “commercial activity” (a fundraiser), the activities taking place at the fundraiser advanced the fundamental goals of the non-profit.  On the other hand, if the church fundraiser involved an organized outing to a casino, the cap would likely not apply because a trip to a casino would not likely be seen as advancing the purposes of the church.

NO CAP FOR EMPLOYEES OF THE CHARITABLE ORGANIZATION

Although a charitable organization may be entitled to the cap on damages, individual employees/managers/directors of the organization do not receive the same protection that the charitable organization itself receives.  This is often a significant issue in any case in which the organization has convinced the court that it is entitled to the cap on damages.  Plaintiffs will sue individual employees of the non-profit and advance negligence claims against the individual employees rather than the non-profit entity because the cap does not apply to claims against individuals.  If the plaintiff is successful in advancing the individual claims, there will be no cap on any damages recovered even though the claims against the charitable organization are capped.

The earlier example of the church picnic illustrates the practical application of this.  Assume someone was injured at the picnic because a decoration fell onto the plaintiff. If the decoration was set up by an employee of the church, the injured person would likely sue that employee in addition to suing the church. The exposure of the church would be capped at $20,000, but the claims against the employee would not be capped. For this reason, plaintiffs almost always sue individual employees as a way of defeating the cap on damages.

Courts recognize that a plaintiff will sue individual employees to circumvent the cap and will carefully consider whether claims against an individual employee can go forward.  That is because an individual employee will not be exposed to liability for a particular claim simply because the individual works for the charitable organization.  An agent or employee of a corporation may be held personally liable for torts committed by the corporation if the agent, employee or corporate officer personally participated in the tort. And such participation can exist where the added individual controlled, directed, or authorized the act that injured the aggrieved party. Townsends, Inc. v. Beaupre, 47 Mass. App. Ct. 747, 751 (1999). 

If the plaintiff can make a colorable argument that the responsibilities of the employee bear some connection to the underlying alleged negligence of the non-profit (consider the church employee who set up the decoration that fell on the plaintiff), the court will likely allow a plaintiff to pursue the claim against the individual employee.  Still, since courts will carefully evaluate whether the named employee had any responsibility for the underlying accident, counsel for the individually named employees should aggressively pursue the dismissal of any such employees whose responsibilities have no relationship to the underlying negligence claims. 

INSURANCE FOR CLAIMS AGAINST EMPLOYEES

A significant separate consideration for the non-profit employees and plaintiffs is the fact that the insurer of the charitable organization profit will typically defend and indemnify the employees.  This is obviously significant for the employees; the availability of any such insurance prevents them from facing individual exposure for defense or indemnity.  This is equally important for plaintiffs; because a claim against an individual employee is covered by insurance, the plaintiff has an even greater incentive to pursue that claim. 

CONCLUSION

The cap on damages that is available to a charitable organization is a critically important legal defense that should always be explored to limit the ultimate exposure of the organization.  Because the cap is not always available (e.g. if the accident did not involve the fundamental charitable purposes of the charitable organization or if it arose in the setting of a primarily commercial activity), it will be necessary to confirm that the claim is one in which the cap applies.  If it does, the non-profit should pursue a motion for summary judgment seeking a judicial declaration that the cap applies to the case. 

While the cap should be aggressively pursued, it is important to recognize that the ultimate protection that it provides may be limited since it will not insulate individual employees, officers, or directors from damages above the cap.  However, because courts do not approve of individual defendants being added solely to defeat the cap, claims against individual employees should be aggressively challenged to ensure that viable claims have been asserted. 

Disclaimer

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Morrison Mahoney LLP representative or other competent legal counsel.

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