Nonprofit directors and officers often view their personal liability exposure as much lower than that of their for-profit counterparts. Consequently, many nonprofits carry no or inadequate personal liability insurance for directors and board members.
In reality, claims naming nonprofit directors and officers are as widespread as those against for-profit corporations and can cost organizations hundreds of thousands of dollars or more.
When someone joins your organization’s board, that person assumes a level of responsibility for running and managing your organization in a proper manner. That means your organization’s director and officers (who may be volunteers) could be named personally in a lawsuit against your nonprofit.
General liability insurance isn’t enough. The typical general liability policy doesn’t cover the consequences of mismanagement by officers and directors. Directors and officers (D&O) liability insurance covers the cost of defending directors and officers and pays monetary damages resulting from mismanagement claims.
What Is Covered?
Generally, D&O policies provide coverage for claims based on failure to govern, breach of fiduciary duty, and improper employment practices — none of which are normally included in general liability policies. Additionally, with the recent proliferation of cybersecurity breaches, you may want to look for cybersecurity coverage in a D&O policy or ask for a specific rider.
Employment practices liability coverage is especially important since such a large percentage of the claims made are employment practices claims. These may include claims based on alleged discrimination, harassment, defamation, wrongful termination, failure to hire, failure to accommodate a disability, and retaliation. Claims are also frequently made for improper employee classification (exempt/nonexempt and independent contractor/employee).
If you have any questions about your nonprofit organization, please contact Warady & Davis LLP at (847) 267-9600.
Legal Notice: The materials communicated in this transmission are for informational purposes only and not for the purpose of providing accounting, legal or investment advice. You should contact your accountant or advisor to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an accountant-client relationship between Warady & Davis and the user or browser. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. Any accounting, business or tax advice contained in this communication is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Warady & Davis would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. ©2015