Nonprofit Directors & Officers Insurance and Your Personal Liability
We get a ton of questions about how Nonprofit Directors and Officers Insurance works and who is at risk, when they are at risk and when they are at risk. I’ve culled out the top three most common questions and provided brief answers to help you better understand the issues at hand.
Question: I’m on a Nonprofit Board, what is my personal liability? A lot. You can be sued as an individual for your actions as a Board Member. And remember that people can sue you any time for almost any reason and even if you haven’t done anything wrong you still have to defend yourself. A defense, of course, can be quite costly but your Directors & Officers Insurance coverage will pay for this defense which is one of the best reasons to have it.
Question: But won’t my Homeowners Insurance cover me if I am sued? No. In most Homeowners policies there are specific exclusions for any claims or lawsuits arising out of service on community boards. So, it’s very important nonprofits have Directors and Officers Insurance and that individuals do not serve on uninsured boards.
Question: What else can a nonprofit do to protect its board members? Two Things. First, examine the board’s governance activities to ensure that they are complete and include the duties owed by each member. Then make sure that each board member has a clear understanding of his/her responsibilities as well as the board rules and procedures. Second, review the nonprofit bylaws and make sure that there is language that outlines the intent of the nonprofit to cover the expenses incurred by a board member to defend a lawsuit or pay a judgment and under what circumstances.
Nonprofit Directors & Officers Insurance can get a bit complicated and has several “add on” coverages to consider but the bottom line is that it is all about protecting your organization and the good people who donate their time to be on your board of directors. So, don’t go without D&O coverage and make sure your broker is available to answer and coverage questions you have about it.
For more info you can check out our white paper The Nuts & Bolts of Insurance for Nonprofits or give us a call.
