What it is
Non-profit directors and officers (D&O) insurance provides coverage for protection for exposures that are not covered by your non-profit general liability policy or related policies. Non-profit directors and officers insurance covers claims and lawsuits associated with the actual or alleged bad management decisions made by the board of directors. The coverage can include the mismanagement of the non-profit’s funds, failure to provide particular programs or services, etc. Most (but not all) non-profit directors and officers insurance policies also cover employment related practices claims and lawsuits. The coverage can include claims of harassment, discrimination, wrongful terminations, etc. Note that the coverage extends to claims made by volunteers and third parties as well as employees.
Three Reasons Why Your Nonprofit Needs this Coverage
- You want the best board possible: Many members of the community that have skills beneficial to your organization may not be willing to serve if you do not have this coverage in place.
- Volunteer protection Laws are not absolute: While your board members may have some protection under state and federal volunteer protection laws many claims fall outside of those protections, and D&O coverage fills in those gaps.
- You can’t please everyone: The board can make decisions that they think are in the best interest of the organization but unknowingly cause harm or at least perceived harm which can lead to a claim.
This Could Happen to Your Nonprofit
Misrepresentation of Financial Status
The board of directors of a foundation was sued by a group of donors claiming misrepresentation of the foundation’s financial status. They specifically alleged that donations were not being used for the purpose specified by the donors. The legal fees were more than $56,000 and the case was settled with repayment of $160,000 to donors and dismissal of several key board members.
Failure to Manage Appropriately
At a holiday fundraiser and entertainer threw a gift into the crowd injuring an attendee. The general liability policy covered the injuries to the attendee. However, the injured party also sued the board of directors for financial damages claiming lack of planning for adequate safety protocols and training. The claim settled for $200,000, and the defense costs were $25,000.
Breach of Contract
A nonprofit was sued by an independent contractor for breach of a project contract, claiming unpaid obligations. Not all D&O policies provide coverage for breach of contract, but often there is a sub-limit for defense costs only, so the nonprofit was provided with an experienced defense attorney to assist them. While the defense costs reached $25, the nonprofit was able to obtain a very favorable compromise on the contract damage issues.