Nonprofit organizations need several types of insurance coverage to protect themselves, their interests, and their employees from lawsuits. Some examples include general liability insurance, workers compensation insurance, property insurance, and more. When beginning the insurance coverage process, most nonprofit leaders ask about directors and officers (D&O) insurance first. Many leaders view D&O policies as catchalls that protect board members and other leaders from all lawsuits. However, this isn’t the case. In reality, D&O insurance provides management liability coverage.
Understanding D&O for Nonprofits
This type of coverage offers protection to board members and nonprofit leaders in the event of wrongful acts lawsuits. The following are reasons why nonprofits need D&O insurance:
- Lawsuits can hold anyone who helps manage a nonprofit liable for errors or omissions committed while operating the organization. Directors, employees, and even volunteers can find themselves at the center of such lawsuits.
- People sue directors and officers for a wide range of issues including failure to achieve the nonprofit’s mission, misuse of donor-restricted funds, improper conduct of volunteers or employees, and more. These lawsuits can decimate a nonprofit without proper insurance.
- Fees and damages related to D&O claims can exceed the net worth of the nonprofit, inhibiting its ability to compensate directors and officers for their losses.
- People are more likely to file D&O-related lawsuits against nonprofits than they are for-profit companies. In the past decade, 63% of nonprofits reported a D&O claim compared to 27% of private companies.
- The Volunteer Protection Act doesn’t provide full coverage for directors and officers. Two exclusions include no compensation for legal fees and no coverage for lawsuits related to damages caused by gross negligence.
Nonprofits are not any more immune to lawsuits than their for-profit counterparts are. To make matters worse, nonprofits are often working with fewer resources and funds, making it that much harder to weather a significant lawsuit. By investing in a quality D&O insurance policy, nonprofits have access to coverage for defense costs and settlements. Contact the experts at SteelBridge to learn more about protecting your nonprofit.