Nonprofit Insurance Alert: D&O Liability Coverage is Crucial

Published on Tue, 07/30/2013 - 16:44

Over the past few years, our country’s economic struggles have taken a toll on nonprofits. Nonprofits face tougher budget decisions; greater oversight and pressure; and more disputes, lawsuits, and costly settlements.

So it’s easy to see why directors & officers (D&O) liability insurance is an increasingly a hot topic at board meetings. In these litigious times, nonprofits and their board members can quickly find themselves in legal hot water for a growing list of alleged wrongful acts including:

• Discrimination (age, race, sex, employment, membership)
• Harassment
• Wrongful termination of employees
• Inefficient administration or supervision
• Waste of assets or misappropriation of funds
• Misleading reports or other misrepresentations
• Libel and slander
• Failure to deliver services
• Acts beyond the granted authority
• Breach of contract
• Regulatory non-compliance

How big is this problem?
According to the 2012 Towers-Watson Directors’ and Officers’ Liability Survey, 36 percent of companies surveyed  had claims against their D&O liability policies in the last 10 years with nonprofits reporting the highest proportion of claims at 63 percent. Survey authors noted that this finding was significant because it dispels the myth that D&O claims only occur in large, public companies. Eighty-five percent of non-profit D&O claims over the past 10 years have involved employment-related issues, and 39 percent have involved regulatory compliance issues.

Nonprofit publication, reports that the average cost of settlement for nonprofit D&O claims that don’t go to court is $28,000 and the average legal cost to defend a nonprofit D&O claim is $35,000. If you’re like most nonprofits, you don’t have that kind of cash set aside to pay for a lawsuit!

Why protecting board members is the right thing to do.
Many nonprofits fail to realize that board members’ personal assets can be placed at risk. Homeowners and umbrella policies often do not cover board members for decisions/mistakes they make on behalf of nonprofit organizations. If attorneys choose to go after their personal assets, they can face financial ruin. Therefore, nonprofit organizations are well-served to offer their board members D&O insurance protection to aid with board member recruiting, satisfaction and good will. In other words, if you want someone to serve your organization, you should be willing to protect their exposures in doing so.

A crucial investment.
In summary, D&O liability insurance should be considered a "must have" component in your overall nonprofit insurance strategy. Overlooking this liability puts board members unnecessarily at risk. A D&O policy indemnifies your directors and officers for damages and defense costs arising from lawsuits alleging various wrongful acts. It may also reimburse your nonprofit for any indemnification your bylaws or state laws require you to provide to your directors and officers.

While D&O liability coverage has often been thought of as an expensive luxury that could be trimmed from nonprofit budgets, it has evolved into a broad and essential coverage. And with easy access to affordable D&O liability coverage, you should consider it a crucial investment for your organization.

Need quality nonprofit insurance? Heffernan Insurance Brokers can help you identify and mitigate potential risks with insurance protection designed to keep your nonprofit mission alive, no matter what comes your way.