Non-Profit Directors and Officers Insurance

All about D&O insurance for non-profits

Non-Profit Directors and Officers Insurance

Non-profit directors and officers insurance or D&O insurance is essential for big corporations as well as nonprofits. This insurance covers the cost of legal issues faced by the director and officers of a company. Every policy covers different claims. Apart from criminal and fraudulent charges, most claims are covered by D&O insurance.

Every corporation has a director, officers, employees, and a management staff that ensure the smooth functioning of a company. It exposes the company to several legal risks.

The D&O insurance assures protection from legal claims. Whether you are a big company or nonprofit, non-profit directors and officers insurance is something you should consider. Here’s why. 

What is Non-Profit Directors and Officers Insurance?

what is D&O insurance

Directors and officers or D&O insurance covers the cost of legal fees, settlements, wrongful allegations, and the judgment arising from a lawsuit. If a director or officer of the company is sued, the D&O reimburses the company. Nonprofit directors and officers insurance also protects the person holding the post from personal losses. The insurance covers the director or officers of the company if they are sued and reimburses the company in case of a lawsuit.

However, most D&O policies do not cover criminal offenses or fraud charges. In most cases, the director and the officers get sued together as an individual or another corporation can sue them. At times the claims are valid, while at other times, they aren’t. Either way, the D&O insurance usually covers it all. 

Directors and officers insurance for non-profit organizations insurance also covers any losses incurred by the company in legal fees. Whether you are a big corporation or a nonprofit, D&O is essential. The director and officers of a company need to keep track of the ever-evolving legal system. If you miss something out, the repercussions can be massive.

When a company has D&O insurance, it can be reimbursed for any legal issues the director and officers face. The policy may not protect you, but it will be able to provide monetary and legal support. This way, the company does not have to take a financial loss. Directors and officers are often in the limelight. It is easy to target them for the slightest mishap.

No matter who makes a mistake, the price has to be paid by the top management. They are responsible for the functioning of a company. That means when a company is sued, directors and officers are automatically blamed.

D&O insurance is essential for all companies, whether big or small. Remember that it is better to be protected from unforeseen legal troubles as legal liabilities can cause a big hole in a company’s pocket. With excellent D&O insurance, you can avoid this.

Why is Non-profit Directors and Officers Insurance Important?

Top Management’s Lack of Experience

Most of the time, the directors appointed by nonprofits lack the experience. They are mostly hired due to their passion for the vision. These directors are well versed in the vision of the company and their job is to create all the policies and regulations of a nonprofit. At times the directors or officers might get sued due to these policies. There are other reasons why a director might get sued. The D&O insurance helps pay for the settlement or any additional legal costs.

The Nature of the Causes

In the USA, 20% of all the companies are nonprofit. That is why non-profit directors and officers insurance is essential for them. Nonprofits stand up for causes. Some causes might not sit well with other people or companies. In this case, the nonprofit can be sued.

Protecting the Funds

When a nonprofit is issued, it has to pay legal fees from its funds. Since nonprofits work on donations, their funds need to be protected at all costs. Whether the nonprofit is big or small, it needs D&O insurance. Nonprofits have to cut costs wherever they can. But this should not be done when it comes to D&O insurance. They will realize that the insurance cost is far lesser than what they might end up paying in legal fees. 

Non-Profit Vulnerability

Most nonprofits believe that they are protected under the federal Volunteer Protection Act. Unfortunately, not everyone is covered under this act. Several legal technicalities can cause trouble. Since most of the directors are not highly qualified, they might overlook something. Nonprofits believe that just because they are not a for-profit company, they won’t get sued. It is not true. Nonprofits have made 58% of the D&O policy claims.

Other

The D&O insurance for nonprofits also covers personal issues such as wrongful termination, discrimination, mismanaging assets, or failure to provide services. By purchasing a D&O, the nonprofit reduces the risk of legal trouble.

Who is Covered by Non-Profit Directors and Officers Insurance?

The D&O insurance for nonprofits covers:

  • Past, present, future directors
  • Trustees
  • Officers
  • Volunteers
  • Committee members
  • Employees for nonprofits

In case of death, insolvency, or bankruptcy, non-profit directors and officers insurance covers:

  • The executors
  • Heirs
  • Legal representatives 

In short, the policy assures security to everyone in the company. It helps mitigate risk and guarantees compensation in case of a legal mishap. It is crucial to go through the policy thoroughly. Also, you should think about purchasing one that covers all kinds of claims.

Some nonprofits might lean towards a cheaper policy. Still, it might be a good idea to go for a policy that covers everything as you don’t want to end up paying money even after purchasing a policy.

Most policies do not cover fraud and claims brought by one director to another. The most common claims are employee-related. So, when you purchase a policy, make sure employee-related claims are appropriately covered. The majority of directors and officers get tangled in employee-related lawsuits.

Nonprofits often use marketing materials and newsletters to publicize their cause, which is why it is essential to purchasing a D&O policy that includes ‘publishers’ liability and personal injury. It assures coverage in case of defamation, copyright, trademark infringement, or libel.

What Does Non-Profit Directors and Officers Insurance Cover?

Failure to Meet Regulatory Standards

If your nonprofit fails to meet certain regulatory standards, your board of directors could take the blame. In this case, non-profit directors and officers insurance can help you cover the legal fees and the costs of hiring lawyers.

Accusations of Mismanaged Funds

In case a board member gets accused of making a bad decision such as misusing the funds, they could easily get sued. Keep in mind that legal fees could be a big financial hit for your company. 

Failure to Perform Official Duties

Directors and officers might not have infinite power in a company, but when something goes wrong, they are usually the first ones who get blamed. If a board member gets sued for failing to perform some of the official duties, this insurance can cover the costs of hiring the lawyers and other legal fees. 

D&O Insurance Cost

The basic D&O insurance starts from $70 per month. This D&O insurance for nonprofits might not cover a lot of claims. You can also buy policies for $800-$1000 per month. Ideally, nonprofits should go for policies that cost $10,000 and above.

Of course, this is not necessary. If your nonprofit organization is small, you can go for low-priced D&O insurance. Larger nonprofit organizations need to go for a higher range. Depending on the number of employees, board of directors, and other officers, you can decide which policy to pick.

It should cover all the potential claims that the nonprofit might face. Both small and large nonprofits must have D&O insurance. It is essential to compare the policies before you purchase one. You can get in touch with an insurance expert who will provide you with all the details you need. 

Non-profit Directors and Officers Insurance FAQs

Do Nonprofits Need Directors and Officers Insurance?

In short, regardless of the industry and the size of the company, all nonprofit organizations should consider having D&O insurance for nonprofits. 

Is Directors and Officers Insurance Mandatory?

D&O insurance for nonprofits is not mandatory. However, it is an important part of the corporate hierarchy as it protects directors and officers against personal liabilities. 

What is Not Eligible for Directors and Officers Liability Insurance?

D&O insurance for nonprofits doesn’t cover claims that are made against the entire company. The policy only covers claims made against directors or officers for certain and alleged wrongful acts.

Running a company requires a person to be well versed with the law. But no matter how hard they work, sometimes things might go wrong. When nonprofits function at total capacity, they become liable for their actions. That is why it is vital to protect the directors, officers, employees, and other people linked to the nonprofit. That’s where non-profit directors and officers insurance comes in handy. 

Did you like this article? If you found it useful, make sure you also learn more about the difference between claims made and occurrence policies!

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