If you are a board member of a nonprofit organization, it’s possible that you’ve never heard of directors and officers insurance. Even organizations like community athletic associations are susceptible to lawsuits, but good directors and officers insurance will protect you in the case of litigation for decisions you made for the organization.
A Strange Trend
Most of the time, D&O insurance is used to protect the officers of major corporations. Nowadays, however, people are suing each other left and right. Let’s assume that you’re a parent serving on the board of your kid’s local soccer league. Did you know that if another child is injured during a game, YOU can be held liable?
Many folks are unaware that even nonprofit organizations need to protect themselves from these kinds of lawsuits.
The Liabilities of Leadership
Whenever anyone agrees to sit on the board of an association or organization, that person is assuming some responsibility for the organization. The person is then held responsible for managing the affairs of the organization in a proper manner. This might seem vague, but all board members are held to this standard.
Board members, therefore, expose themselves to be the target of claims. D&O claims fall into the non-bodily injury category (this can include allegations of negligence, mismanagement, discrimination, etc.).
Now, let’s take our example from earlier. If a child were injured in a soccer game, then the general liability insurance would cover damages filed by the injured child’s parents regarding the injury. If, however, the parents decide to sue the association or any of its board members claiming that the board did not provide adequate safety measures, then the general liability insurance would not provide coverage for this accusation. Only D&O insurance would provide the necessary coverage for this accusation.
What Does D&O Insurance Cover?
D&O insurance provides coverage for wrongful acts committed by the board members or, using our example, the athletic officials. Wrongful acts on a D&O policy include misleading statements, negligent acts, or breach of duties.
Associations must send their by-laws, financial information, and a completed application to an insurance company in order to quote them with D&O coverage. The company will then usually return a proposal with coverage options and pricing. It is up to the association or nonprofit organization to determine the level of D&O coverage needed.
D&O policy holders should know the status of their claims-made coverage. Claims made coverage means the company will pay for a covered claim if a lawsuit is filed and occurs while the organization holds the policy. By contrast, an occurrence policy will pay a covered claim based on when the accident or occurrence happened.
Also, the organization might want to obtain an Extended Reporting Period, or Tail Coverage. Since claims-made policies will only insure the organization while the policy is in action, some organizations look for protection for events that are reported once the policy expires. Tail coverage will then provide insurance for these claims that occur during the policy period but are reported once the policy cancels.
All nonprofit organizations need to include D&O insurance into their structure. It is an absolute necessity nowadays, as more and more people are turning to litigation just to make a quick buck. It’s expensive even to defend a baseless claim. So, protect yourself and your organization by obtaining a D&O policy that will protect your leaders.
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