Charitable Immunity For Non-Profits May Turn on the Amount of Private Funding

Charitable Immunity For Non-Profits May Turn on the Amount of Private Funding

A recent Appellate Division case in New Jersey found that the Charitable Immunity Act may not apply where private donations to the charity amounted to only 1-2% of the total budget. This means non-profits with low amounts of private funding may not be able to use the significant protections of the Charitable Immunity Act.

The Charitable Immunity Act, passed in the late 1950’s, applies to nonprofit organizations that have been formed exclusively for religious, charitable or educational purposes. The Act protects the organization from the negligence claims if the injured person is a beneficiary of the charitable work of the organization. The Act was passed to encourage private donations and to eliminate the fear that donations would not be used for charitable purposes. 

In July 2019, the Appellate Division considered a slip and fall case which occurred at Integrity House, Inc. Integrity House is a 501 (c)(3), tax-exempt organization that operates an in-patient drug treatment facility in Newark. One of the residents of Integrity House slipped and fell, suffering personal injuries on a wet interior staircase in the facility. The resident filed a lawsuit alleging Integrity House was negligent in its maintenance of its building. Integrity House claimed it was protected from the lawsuit under the Charitable Immunity Act.

The Charitable Immunity Act would insulate Integrity House, Inc. from liability, but to qualify for the Act, the Court considers three elements: that the organization (1) was formed for non-profit purposes, (2) is organized exclusively for religious, charitable or educational purposes, and (3) was promoting those goals at the time of the injury to the plaintiff who was a beneficiary of the charitable works.

This case hinged on the second prong of the act, namely whether or not Integrity House was organized exclusively for charitable purposes. The court found that a financial analysis of the source of funds was required to determine if Integrity House was organized for charitable purposes. As the Charitable Immunity Act’s purpose was to protect private donor funds, the court required Integrity House to prove it had a significant amount of privately donated funds. Where the vast majority of funding was from government grants, the court stated the purposes of the Charitable Immunity Act were not being served and immunity would not be granted.

The Appellate Division was concerned that only 1 or 2% of the budget came from private donations, while the majority of Integrity House’s funding was government grants. The court was also concerned that there was not very much information provided about what efforts the organization made for private fundraising. The Appellate Division sent the case back down to the Trial Court for further proceedings and denied Integrity House the award of charitable immunity.

 

Non-profits need to carefully consider their own circumstances in light of this recent decision. A court may consider the organizations percentage of private funding as well as efforts to fundraise in order to qualify for the Charitable Immunity Act. If you have questions or concerns about this decision, please reach out to one of our attorneys to further discuss your organization’s circumstances.