D&O insurance safeguards your decision-makers The board of directors plays a crucial role in steering the course of your nonprofit organization. From establishing goals and strategies to allocating funds and determining employee salaries, their decisions carry significant weight. Consequently, it is essential to provide liability protection for the board members.
Directors and officers (D&O) insurance, also known as management liability insurance, steps in to cover legal expenses arising from lawsuits linked to decisions made by the board of directors and officers appointed or elected by them. D&O insurance addresses various situations, including:
- Accusations of mismanaged funds
- Failure to adhere to regulatory standards
- Neglect of official duties
What protection does directors and officers insurance offer for nonprofits?
- Accusations of mismanaged funds: In case board members face accusations of making poor investment decisions or mishandling your nonprofit’s funds, potential lawsuits can emerge. Even if the claims lack merit, the legal expenses, including attorney’s fees and court costs, can pose a significant financial burden on your organization. Directors and officers insurance steps in to cover these expenses.
- Failure to meet regulatory standards: Nonprofit organizations, such as animal shelters or charities, must adhere to regulatory standards. If your organization falls short, the blame may be placed on the board of directors. D&O insurance for nonprofits helps cover the costs associated with hiring an attorney and other legal expenses stemming from non-compliance with industry standards or regulations.
- Failure to perform official duties: Despite the limited control directors and officers may have over the organization’s success, they can be held accountable when things go awry. If a board member is sued for neglecting fiduciary duties or failing to meet legal requirements, D&O insurance for nonprofits assists in covering the expenses related to hiring legal representation and other associated costs.
How D&O Insurance Enhances Talent Attraction for Your Nonprofit Organization
Acquiring Directors and Officers (D&O) insurance for your nonprofit serves as a clear signal that your directors and officers enjoy protection. This assurance becomes a magnet for top talent, as individuals may be hesitant to join if they perceive a risk to their personal assets.
Any organization boasting a board of directors or advisory committee stands to gain from D&O insurance. Engage in a conversation with a licensed agent specifically versed in nonprofit insurance policies to delve deeper into the benefits.
What is the Cost of D&O Insurance for Nonprofit Organizations?
Typically, nonprofits incur a median cost of around $70 per month for Directors and Officers (D&O) insurance. However, the actual expense can vary, either higher or lower, based on specific risk factors.
The factors influencing the insurance costs for nonprofit organizations encompass:
- Nature of nonprofit services provided, such as counseling or pet adoption
- Valuation of business equipment and property
- Revenue generated by the nonprofit
- Geographic location of the nonprofit
- Number of employees associated with the organization
What Isn’t Covered Under D&O Insurance Coverage?
D&O insurance is comprehensive, but there are certain exclusions to be aware of. Here’s a breakdown of what D&O insurance typically doesn’t cover:
Failure to Purchase Enough Insurance:
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- Explanation: D&O policies exclude lawsuits stemming from the failure to acquire sufficient insurance limits. This prevents organizations from underinsuring with the expectation of using D&O limits to fill gaps in coverage.
Deliberately Fraudulent Acts or Omissions:
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- Explanation: While D&O insurance covers wrongful acts, it does not extend coverage to directors or officers engaged in deliberate fraud or illegal activities.
Claims with Prior Notice:
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- Explanation: D&O policies have a prior notice exclusion. If a director or officer is aware of a fact, circumstance, or event that could lead to a claim, it is excluded from coverage.
Bodily Injury/Property Damage:
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- Explanation: D&O insurance policies explicitly exclude coverage for bodily injury and property damage. These incidents are typically covered by commercial general liability insurance to avoid overlap between policies.
Additional Essential Policies for a Nonprofit Organization
While directors and officers insurance provides liability protection for those overseeing your nonprofit, it may not address all potential risks. Small nonprofit owners should also consider:
General Liability Insurance:
- Covers expenses related to client injuries, property damage, and lawsuits involving libel or slander.
Business Owner’s Policy (BOP):
- Combines general liability and commercial property insurance at a potentially lower rate than separate policies.
Professional Liability Insurance:
- Also known as errors and omissions insurance, it covers legal expenses if the nonprofit faces a lawsuit due to unsatisfactory or negligent work.
Workers’ Compensation Insurance:
- Required in most states for nonprofits with employees, it covers medical costs for work-related injuries and illnesses.
Employment Practices Liability Insurance (EPLI):
- Pays for legal costs if the nonprofit is sued by an employee for issues like harassment, discrimination, or other violations of employee rights.
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