Why Your Nonprofit Should Be Particularly Careful With Directors And Officers Insurance

Business insurance can often be very difficult to understand. If you’re not sure then it’s really a good idea to discuss this with your insurance agent who is an expert in these matters. All too often the Board of Directors of a nonprofit organization finds out the hard way that this “uncertainty” was well-founded.

Often, general liability insurance may not cover specific issues associated with “the people at the top.” In fact, we can draw distinctions between general liability and directors and officers insurance, which again underlines the need to talk with an expert to see if you are adequately protected. When you consider that general liability often refers to coverage for negligent acts then that may seem fair enough. Negligence resulting in injury or property damage is covered here and that is quite an understandable situation for most decision makers. However, in the case of directors and officers liability insurance coverage is provided for ordinary or “intentional” actions taken by these individuals that just happens to conflict with somebody else’s opinion. The director concerned may act in good faith and believe that he or she is doing the right thing, but the other person may claim some form of discrimination or harassment, as an example. This type of insurance is there to help you in this circumstance. There is one proviso, of course, and that is that the director was acting in good faith and is not adjudged to be guilty of intentional harassment or discrimination.

Those who often volunteer for nonprofit organizations may feel as if they are doing the right thing and contributing to a good cause. While this is often the case they are not protected from lawsuits as a consequence. There are many cases where individuals alleged that a director or officer may have breached their fiduciary duty and may have caused some damage to the assets or resources of the organization. There are a number of different pieces of legislation that in theory may protect volunteers, but their protection is somewhat limited. It is also not particularly useful if a board of directors agree to cover the board members in the bylaws of the organization, if the resources available to do so are somewhat limited anyway.

Do you have specific directors and officers insurance coverage for your nonprofit?