Directors and officers insurance for nonprofit organizations

Your board of directors makes major decisions about how your nonprofit is run. They might establish the goals and strategies, determine how funds are spent, and set salaries for employees. This means they need liability protection for their decisions—in fact, it’s likely they expect it.

Directors and officers (D&O) insurance can pay for legal costs (indemnification) for lawsuits related to decisions made by your board of directors and by officers elected or appointed by the board. This policy is a type of management liability insurance.

D&O insurance provides coverage related to:

• Accusations of mismanaged funds
• Failure to meet regulatory standards
• Failure to perform official duties

D&O coverage isn't typically required by law, but it can be an important safeguard for many nonprofit organizations. Because board members and officers can be held personally liable for decisions they make on behalf of the organization, D&O coverage helps provide financial protection if a lawsuit arises.

This coverage can also make it easier to attract and retain qualified board members, executives, and volunteers. Many experienced leaders are reluctant to serve on a nonprofit board without liability protection in place, especially if the organization handles significant funding, employs staff, manages programs, or is subject to regulatory oversight.

Directors and officers liability insurance may be particularly valuable for nonprofits that:

• Receive grants or donations and manage large budgets
• Employ staff or oversee volunteers
• Operate programs that serve the public
• Have a governing board that makes strategic or financial decisions
• Need to recruit and retain experienced board members and officers

By helping protect organizational leaders from the financial impact of lawsuits, D&O insurance can support stronger governance and provide peace of mind for those serving your mission.

Directors and officers insurance can help cover legal expenses and other defense costs associated with claims alleging wrongful acts, errors in governance, financial oversight, or regulatory compliance.

Specifically, it can help provide coverage for the following:

If board members are accused of making a bad investment decision or misusing your nonprofit’s funds, they could be sued. Even if the lawsuit is without merit, attorney’s fees and litigation costs could significantly drain your company’s finances.

If your animal shelter or charitable organization fails to meet regulatory standards, your board of directors could take the blame. A nonprofit organization’s D&O policy can help pay for the cost of hiring an attorney and other legal fees that result from a lack of compliance with industry standards or regulations.

Though directors and officers only have so much influence over the success of your company, when something goes wrong, the blame may fall squarely on their shoulders. If a board member is sued for failing to perform fiduciary duties, conflicts of interest, or not fulfilling legal requirements, this policy can help pay for the cost of hiring a lawyer and any resulting settlement or judgment.

D&O insurance can be especially useful for nonprofits with a formal board, executive leadership, or other individuals responsible for making organizational decisions. It may also be worth considering when a nonprofit is just starting out, growing, taking on new programs, managing more complex operations, or increasing fiduciary liability.

Social service organizations that rely on volunteers or community members to serve in leadership roles may also benefit from having D&O coverage in place. The right time to purchase a policy depends on your nonprofit’s structure, bylaws, activities, and potential exposure to leadership-related claims. 

Talk to one of our licensed agents who specializes in nonprofit insurance policies to find out more.

D&O insurance offers liability protection for the individuals who help run your nonprofit, but it doesn’t provide coverage for all risks. Owners of small nonprofits should also consider the following as part of their risk management plan:

General liability insurance: This policy can pay for expenses related to client bodily injuries and property damage, along with lawsuits over libel and slander.

Business owner's policy (BOP): A BOP bundles general liability coverage with commercial property insurance, often at a lower rate than if the policies were purchased separately.

Professional liability insurance: Also known as errors and omissions (E&O) insurance, this policy can help cover legal expenses if a nonprofit is sued for unsatisfactory work or negligence.

Workers’ compensation insurance: This policy is required in almost every state for nonprofits that hire employees. It covers medical costs for work-related injuries and illnesses.

Employment practices liability insurance (EPLI): If a nonprofit is sued by an employee over sexual harassment, discrimination, wrongful termination, or another violation of employee rights, EPLI can pay for legal costs. This policy can also be bundled with D&O and other types of management liability insurance.

Protect your nonprofit’s directors and officers from costly legal expenses with the right D&O insurance policy. Insureon makes it easy to compare quotes from top-rated insurance companies, customize your coverage, and purchase a policy online.

Complete Insureon’s easy online application today to review D&O insurance options tailored to your nonprofit. Once you find the right policy, you can begin coverage and receive a certificate of insurance (COI), often within 24 hours.