Directors & Officers Insurance
Leadership determines the success of every organization, large and small. But for non-profits and social welfare organizations, leadership can mean the difference between survival and failure. So attracting (and protecting) the right kind of people to steward your organization is of paramount importance.
Directors & Officers (D&O) Liability Insurance covers legal expenses when your board members are sued for decisions they make on behalf of your NPO. This coverage allows your executive officers to operate without fear of legal reprisals when they step into leadership positions. That way, you can recruit top talent to help your organization thrive.
Directors & Officers Liability Insurance Explained
When your directors and executives accept their positions, they also accept the possibility that third parties, employees, or regulatory bodies might scrutinize their actions and sue. That's why without D&O coverage, you'd have a hard time holding on to your talented board. After all, no one wants to jeopardize their personal finances for a job.
The types of legal scrutiny your directors and officers might face include…
- Fiduciary duty claims. Accusations of misuse of organization funds can threaten your directors' personal assets and damage their reputation.
- Claims by employees. Disgruntled team members can claim discrimination, wrongful termination, breach of contract, invasion of privacy, and even infliction of emotional distress if they are unsatisfied with leadership.
- Claims by competitors or similar organizations. Unfair competition, claims of defamation or libel, and trademark issues can plague your organization and its officers.
If your directors and officers are sued for the decisions they make, they'll be facing tens of thousands of dollars in legal costs and the hassle of defending themselves — considerations that might prevent them from wanting to help your non-profit grow. D&O Insurance reimburses those costs so your organization doesn't have to.
Key Details About D&O Liability Insurance
D&O Liability Insurance is primarily purchased by startup non-profits and community organizations, but can be useful for any small business or organization that does not have the financial resources to indemnify its directors and officers directly. Policies vary based on your needs and situation, but the following considerations are important across the board:
D&O Insurance is Purchased by Your Organization
Your D&O policy is an organizational asset. It helps you recruit talented officers, it stays in place as directors come and go, and it protects your leadership from reputation-damaging lawsuits.
D&O Liability Insurance Doesn't Cover Criminal Acts
A D&O policy is not a "get out of jail free" card — it covers "wrongful" acts such as negligence, omission, or misstatement, but not intentionally illegal acts, crimes of dishonesty, or fraud.
Other Insurance Polices Don't Cover D&O Claims
Many organizations believe their General Liability or Umbrella policies adequately protect their management, but that's not true. D&O Liability Insurance is the ONLY policy that covers your leadership for lawsuits over management decisions.
D&O Insurance Isn't Just for Large Public Companies
While privately held companies and not-for-profit businesses don't face the same securities liability as larger public companies, their directors are still exposed and can run afoul of regulatory rules, including tax laws.
D&O Litigation Is More Common and Expensive Than You Think
A recent survey found that 12 percent of participants had been involved in a D&O lawsuit in the last five years. The average cost to settle or litigate the matter was over $200,000. 90 percent of the participants had annual revenues under $25 million.
Business Protection Tips
The way you run your organization can help you avoid D&O suits and may lower the cost of your D&O Liability Insurance.
Update and Follow Your By-Laws
Make sure your directors are following the rules in meetings. Also, updating your NPO's rules periodically can go a long way toward sidestepping management issues.
Make Sure Your Employee Handbook Is Well-Drafted
Communication with your employees about expectations and procedures can head-off employee-related D&O claims, which comprise a large proportion of annual D&O problems nationwide.
Maintain Records of Meetings and Communications
Document board-meeting minutes; record communications with vendors, investors, and important customers; and keep accurate financial records to eliminate the majority of your D&O liability risks.