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D&O insurance allows your board to do good, safely

September 21, 2016

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Directors and officers (D&O) liability insurance enables board members to make decisions without fear that they’ll be personally responsible for any related litigation costs. Many not-for-profits fail to obtain this type of coverage because they don’t think they need it — yet hundreds are sued every year. If you don’t have a D&O policy, your directors may be at risk.

Trust, but protect

A D&O policy normally covers allegations of wrongful acts, errors, misleading statements, neglect or breach of duty in connection with a person’s performance of duties. It can provide a safety net if your nonprofit or its directors are accused of:

  • Mismanagement of funds or investments,
  • Employment discrimination or harassment,
  • Self-dealing,
  • Failure to provide services, or
  • Failure to fulfill fiduciary duties.

Claims-made policy

An unusual characteristic of D&O policies is that they’re claims-made policies; the insurer pays for claims filed during the policy period even if the alleged wrongful act occurred outside of the policy period. So, an alleged wrongful act could have occurred three years ago under different leadership and still be eligible for reimbursement.

Another important feature of such policies is that they provide no coverage for lawsuits filed after a policyholder cancels — even if the alleged act happened when the policy was still in place. However, if your policy expires or is canceled, you may be able to buy extended reporting period coverage, which could cover newly filed claims on actions that allegedly occurred during the regular policy period.

Get what you need

D&O coverage varies by insurer. Before you look for a policy, determine what coverage your nonprofit needs — for example, the people and actions that should be covered and the amount of protection. Premium amounts depend on the extent of coverage as well as your organization’s characteristics.

Note that not every nonprofit needs D&O insurance. In some states, volunteer immunity statutes provide limited negligence protection (but it doesn’t extend to federal statutes). Talk to us and your legal advisors to determine what your organization needs before it’s embroiled in a lawsuit.

© 2016

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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