NONPROFIT DIRECTORS AND OFFICERS (D&O) LIABILITY INSURANCE
Persons who are directors, trustees, and officers of nonprofit
organizations are subject to personal liability and lawsuits
due to failure to properly perform their duties. Nonprofit
directors and officers liability insurance is an excellent
way to transfer many of these loss exposures to another party
(an insurance company). Are you insured for any nonprofit
boards that you sit on?
The term "nonprofit" in this discussion is a bit of a misnomer,
since many nonprofit entities can, and do, earn a profit.
Furthermore, there is a wide range of nonprofit organizations
whose services benefit either the public at large or the members
of the nonprofit entity itself. Examples include hospitals
and nursing homes, condominium and homeowners associations,
educational institutions, foundations, religious and social
service facilities, trade associations, fraternal organizations
and chambers of commerce.
Many actions by persons within the nonprofit organization
can trigger a lawsuit in today's legal climate. For example,
over 50% of all D&O claims against nonprofits involve improper
employment related practices, such as wrongful termination,
discrimination, breach of contract, and sexual harassment.
Suits may also be brought by any of the following:
- Beneficiaries, who feel that they were either denied benefits
of the nonprofit or received less than they were entitled
to receive.
- Donors, who allege that their contributions are either
being wasted or are not being used to advance the purposes
of the organization, as stated in its charter.
- Outside parties, who claim libel, slander or plagiarism
due to the content of a presentation or publication by the
organization.
- Board members, who sue other directors, claiming misinterpretation
of the charter (such as improper decisions regarding what
funds and services are to be provided to the public) or
a conflict of interest.
- State attorney generals, alleging mismanagement or antitrust
activity.
The directors and officers of nonprofits are subject to duties
of loyalty, obedience, and diligence. In recent years, many
states have enacted legislation designed to eliminate or reduce
the liability exposure of nonprofit organizations and their
directors, officers, employees, and volunteers. However, none
of the state laws apply to liability that arises out of federal
statutes, such as the Civil Rights Acts and the Americans With
Disabilities Act. Moreover, the state laws themselves are still
subject to judicial review in many cases.
One way that a nonprofit entity can protect its directors
and staff is via the indemnification provision in its by-laws.
Although such indemnification is allowed to some extent by
all states, it may not be available if either the entity cannot
sustain the losses and expenses caused by the improper acts
of the directors and officers, or if specific circumstances
reveal that indemnification is not permitted.
The protection shortcomings that arise despite the state
liability limitation statutes, indemnification, and a thorough
loss prevention program may be effectively managed by purchasing
a comprehensive nonprofit D&O insurance policy.
The "insured" in the most comprehensive policies includes
both the nonprofit itself (in D&O parlance, the "entity")
and its subsidiaries, plus its directors, trustees, officers,
employees, volunteers, and committee members. The protection
applies to wrongful acts, as defined in the various policies,
plus defense costs, which are covered whether or not a judgement
or settlement results from the litigation.
The marketplace for nonprofit D&O insurance is very favorable
for the purchaser at present. There are a number of insurance
companies that currently offer nonprofit D&O coverage, creating
a competitive atmosphere that can result in low prices, broad
coverage, and minimal deductibles for buyers that shop carefully
for this protection. Now is a good time to make sure that
your personal assets are properly protected from any potential
liability you may have as the result of services you perform
for nonprofit organizations!
|
