Non-Profit D&O Insurance or Directors & Officers Liability Insurance. What is it, why do you need it, what does it protect and how do you get it? I’m going to answer those questions and more in a moment.
Let’s start off with understanding what D&O insurance coverage is all about and what it’s intended to do.
Whether you’re a for-profit or a not-for-profit, D&O insurance which stands for directors and officers is a form of liability insurance intended to cover the leaders and decision-makers of a company or organization from claims that may allege a wrongful act. A wrongful act is really mismanagement, miscommunication, misleading communications, and failure of a decision-maker to lead the organization in a faithful and diligent manner.
In addition, D&O policies are often broadened to include protection from claims alleging wrongful employment acts with Employment Practice Liability or EPLI protection. Issues that arise under the EPLI portion of the policy will often include wrongful termination, harassment, hostile work environment, discrimination, etc.
The biggest threat of these types of lawsuits is that they name the individual director or leader PERSONALLY for their acts, putting their personal assets at risk.
For non-profit organizations, D&O protection is critical to protecting the board members who are volunteering their time, talents and often treasure to the mission of the organization. And as I just mentioned they are putting their personal net worth on the line for the organization – so protecting them with the best D&O coverage is critical.
Now you may be asking, doesn’t a director’s personal policies cover them for these types of claims?
The answer is no. A director’s homeowner’s policy or personal umbrella policy will not cover them from claims that arise from their service on a non-profit board.
What about directors who may own a business or work for a big company, does any of their business policies cover them for their service on a not-for-profit board?
Good question – if a board member owns a company or is an executive of a company and they have their own D&O policy, there may be an extension of coverage under that policy to cover them for claims that may arise for their service on a non-profit board. This coverage is known as ODL or Outside Directorship Liability and there are some conditions and deductibles to this protection so careful consideration should be given before relying on that.
What are the risks of serving on a board? Do claims actually happen? What types of claims do arise?
Every organization is going to face different types of risks and magnitude of risks, but here are the common claims filed under D&O insurance policies that include EPLI coverage:
Claims for allegations of financial mismanagement – claims can be filed by donors, beneficiaries and other stakeholders.
Wrongful termination – discrimination, sexual harassment and other employment related actions.
Breach of Fiduciary Duty – failing to uphold their responsibilities in driving the mission of the organization.
Failure to comply with laws and regulations – common issues here are putting an organization non-profit status at risk.
Misrepresentation – claims can include misrepresenting the organization’s mission, financial status, impact of programs, etc. to donors, or the public.
Conflicts of Interest – When a director is perceived to have a personal interest that conflicts with the interests of the org, potential claims may arise.
Failure to Supervise – this involves claims that directors and officers failed to adequately oversee operations or employees which leads to reputational or actual harm or damages.
These are only a few of the types of claims that can occur in a non-profit – and before you think “well that will never happen to us” – what’s critically important to understand is that it only takes one bad apple to do harm to all the directors and officers and trigger a claim.
Secondarily, even if you can extricate yourself from situations like these it’s going to be expensive and that’s where a D&O defense expense coverage will come into play.
In addition to paying for lawyers to defend you, D&O insurance will also pay for jury awards and other settlements.
Okay, so I’ve identified all the ways things can go wrong,
So how to you make sure you’re getting the right protection at the right price if you’re looking for D&O insurance?
First, it’s important to understand that not all D&O policies are created equal. D&O insurance is a non-standardized form of insurance so every insurer’s policy form is different.
The best advice I can give you is that you should work with an expert in this field and not rely on a generalist insurance broker. Sure, the local broker that’s insured a small non-profit with a tiny budget for years may be okay, but for larger organizations with a lot of moving parts, buying a D&O policy off the shelf could be dangerous.
Again, please remember we’re talking about putting the personal net worth of your volunteer directors and paid staff at risk here for the organization. They deserve the best protection which is typically found by working with a skilled broker who understands non-profit D&O, which I’m happy to of course say, The Coyle Group is.
We are a major producer of D&O insurance and have access to a wide variety of insurers in this space and can help you and your organization make more informed decisions about your D&O Protection.
I’d love an opportunity to speak with you – give me a call, or drop me an email.
Thanks!
