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Beware: Volunteer hospital directors are personally liable for breach of duty

Wilson Hayman (whayman@poynerspruill.com) is a Partner at Poyner Spruill LLP in Raleigh, NC.

Volunteers who serve as directors of a nonprofit hospital may be lulled into a false sense of comfort, especially if they rely exclusively on information provided by hospital management and are only passively involved in the business of the hospital. Directors often assume they are insulated from potential liability by their volunteer status and the hospital’s directors and officers insurance coverage.

In a decision last year, however, a federal bankruptcy court in Michigan allowed a case for damages to proceed against a hospital’s interim CEO and five directors of the bankrupt Cheboygan Memorial Hospital (CMH). The court reviewed important questions involving breach of fiduciary duty and the application of the business judgment rule to both management and volunteer board members of the nonprofit hospital.[1]

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