Schweickert & Company — Insurance for Nonprofits & Social Service Organizations

Directors and Officers Liability Insurance

Why should you have Directors and Officers Liability Insurance?
Two important points about liability coverage
What to look for in a good D&O policy
How much will a good D&O policy cost me?
Most Importantly
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Why should you have Directors and Officers Liability Insurance?

Regardless of the size of a nonprofit organization, there are good reasons to have a Directors and Officers liability policy. The main purpose is to provide coverage to protect both the organization and its directors against suits brought in cases involving employment related issues, discrimination, and sexual harassment. In addition to these areas, there are, of course, the traditional financial issues that also make a case for carrying this type of insurance.

Over half the lawsuits filed against nonprofits (and 90% of D&O claims) are employment-practices related. They run the gamut from wrongful termination, to failure to promote, to compensation disputes, to interference with employment contract and many related grievances.
Discrimination is the next area of concern and the range of potential actions that fall into this category include everything prohibited by Federal discrimination statutes: race/ethnicity, gender, age, religion, sexual orientation, disability, etc.

Sexual harassment pretty much speaks for itself. An action brought against an organization or an officer or director can be devastating by itself, but the expense can be a back-breaker to a nonprofit.

You may think that your staff is small and friendly (and of course, nurturing a tight-knitted group with excellent communication is an important part of risk management), however, if a staff member thinks they have been wronged, they may bring a suit against the organization and its board members. If this happens, regardless of whether the suit is warranted, legitimate, or frivolous, the nonprofit will have to hire legal counsel to defend themselves.

The average cost of defending a D&O claim is around $100,000. Most nonprofits could not survive the financial hardship that such an expense would impose on the organization. Most articles of incorporation promise to indemnify board members….but is that a realistic promise, if the nonprofit does not have the cash reserves to hand over? A properly written D&O policy will ensure that the nonprofit does not experience such hardship.

Two important points about liability coverage:

Comprehensive General Liability does not cover D&O claims! You may believe you’re fully protected under your Comprehensive General Liability insurance policy. You’re not! General liability insurance provides protection for “negligent” acts resulting in bodily injury, personal injury, or property damage. (Example-A client trips & falls on your property, and looks to the organization to pay for their medical damages.) It does not provide coverage for non-bodily injury lawsuits such as employment practices, discrimination and harassment. This coverage is only available through a D&O policy.

The Volunteer Protection Act of 1997 does not fully protect board members, and provides no protection for the organization itself. These statutes provide limited protection intended to assign the burden of responsibility for a simple “negligent” act of a volunteer acting within the scope of his responsibilities to the nonprofit organization itself. It also does not provide protection against allegations of federal civil rights violations (racial, age, & disabilities discrimination). Also, the statutes only offer protection IF a D&O policy is in place.

What to look for in a good D&O policy:

	The policy covers all directors, trustees, officers, employees, committee members and volunteers of the organization.
	The policy covers the entity as well as all of the above.
	The policy contains a ‘Duty to Defend” clause, which means that the company has the duty to defend the insured even if the allegation or the claim is faultless, groundless, false, or fraudulent.
	The policy should provide full “prior acts” coverage except where the insured has knowledge of a claims situation at the time of the application.
	The policy should not contain exclusions for personal injury coverage, such as libel, slander, defamation, invasion of privacy, etc.
	The policy should not exclude “insured vs. insured” claims by directors and key officers as well as other employees or volunteers.
	The policy should provide for defense costs to be over and above the policy limits.

How much will a good D&O policy cost me?

Non-profit D&O policies are currently available from several insurance companies that meet the above criteria. For a coverage limit of $1,000,000, the annual premium will vary slightly from company to company, but will generally start for the smallest nonprofit at around $1,000 per year.

MOST IMPORTANTLY:

Even if you’ve done nothing wrong, your organization and/or directors and officers are always subject to a disgruntled employee or client’s allegations, resulting in a lawsuit, or a government agency’s investigation. Even if the case is found to be frivolous and the organization is cleared from paying any damages, you still may be faced with the substantial costs involved in defending such an action, including attorneys fees, investigations, and time. Investing in D&O insurance protects your organization’s resources.

Don’t take any chances…protect your nonprofit…understand your insurance coverage. We’re here to help you through the maze! Contact us today:

Schweickert & Company
15 Peters Canyon Road
Irvine, CA 92606
Direct Phone/Fax: 714-689-1772
Email: Laura@schweickert.com