The primary role of nonprofit Directors and Officers Insurance is to maintain financial stability, provide the necessary resources, direction, and vision to help accomplish the goals and mission of the organization. The unique nature of nonprofit organizations presents Directors and Officers with difficult challenges in performing this role.
Most experts agree that nonprofits need Directors and Officers Liability Insurance. Whether you are appointed or elected to sit on the board of a nonprofit organization you assume a level of responsibility for the organization and expose yourself to claims for not managing it in a proper way. This responsibility is called a standard of care. If your actions as nonprofit board members fall below a standard of care you could be sued and held liable for any resulting damages.
Remember, nonprofit Directors and Officers Liability Insurance is not part of the general liability coverage that most nonprofits purchase. Directors and Officers Liability insurance is often confused with professional liability insurance or errors and omissions coverage. However, the two are not the same. Professional liability, or errors and omissions coverage, applies to performance failures and negligence with respect to products and services your organization produces or provides. Not the performance and duties of the nonprofit board.
Lawsuits against Directors and Officers of nonprofit boards of Directors are increasing at an alarming rate. Whether a major social service organization or a local shelter, leaders should understand they place their personal assets at risk by serving on a board of directors. While some states offer immunities, protection and limit liability for nonprofit directors, these statutes may have limitations and will not include federal cases such as civil rights violations.
Typically nonprofit Directors and Officers Liability Insurance will cover administrative, civil, regulatory proceedings (based on actual or alleged acts), errors, omissions, misstatements, neglect, or breach of duty committed or allegedly committed by a director or officer while acting within the scope of their duties. The policy also reimburses nonprofit corporations for any indemnification that their bylaws or state laws require them to provide to the Directors and Officers.
Key features of nonprofit Directors and Officers Liability Insurance may include:
- Entity coverage: Most policies now include coverage for claims made against the organization itself, even if Directors or Officers are not included in the claim.
- Employment Practices Liability coverage: Nonprofit Directors and Officers Liability policies also help protect insured persons of the organization against damages from claims for wrongful termination, sexual harassment, discrimination and unfair employment practices.
- Limits of liability: There are a variety of coverage limits offered by most insurance companies. These can range from $1,000,000 up to $10,000,000 depending on the size of the nonprofit.
- Deductibles: Deductibles range from $500 and go up to $5,000. Again, the deductible can range depending on the size and ability of the nonprofit to manage costs under the deductible.
- Duty to defend: Most policies are committed to fair resolution of claims and the insurance company has the obligation to defend.
- Defense coverage: Many nonprofit Directors and Officers Liability Insurance policies offer defense coverage outside the limit of liability. This means that defense costs would not reduce the overall limit of liability.
Directors and Officers Liability Insurance can come from the following:
- Employees: Claims can come from employees for employment related issues, harassment, discrimination and retaliation.
- Clients: Clients can bring suite for failure to perform services.
- Contractors: Third parties contractors or vendors can allege failure to comply with contracts.
- Governmental Agencies: Claims due to violations of the law or statutes.
Nonprofit Directors and Officers Liability Insurance claim examples:
A discrimination suit was filed against the board of directors of a nonprofit rehabilitation center when the claimant requested a transfer within the housing complex and was denied. The claimant alleged discrimination based on national origin, religion and sex. The claimant was a resident at a drug and alcohol rehabilitation center. The court dismissed the case due to a lack of evidence. $15,000 was paid in defense costs.
A nonprofit was sued by an organization for improperly infringing upon the claimants intellectual property rights after using logos and images owned by the nonprofit in a fundraising program. The claim settled for over $400,000 including defense costs.
The current market for nonprofit Directors and Officers Liability Insurance is competitive and there are many markets writing coverage. Nonprofit Directors and Officers Liability Insurance responds to protect the organization and its Directors and should be considered by every nonprofit organization.