Insurance can be expensive, and after investing in general liability, workers’ compensation, errors and omissions (E&O) insurance, and more, many nonprofits may be wondering if they really need directors and officers (D&O) insurance. The short answer is yes. Here are some compelling reasons why:
Understanding D&O Insurance
The name is a bit of a misnomer as D&O insurance provides coverage beyond directors and officers. It also covers trustees, employees, and volunteers. This type of insurance provides coverage for decisions the board of directors makes regarding programs, fund allocations, and more. It also provides coverage in the event that someone files a claim related to wrongful termination, harassment, or discrimination. The three biggest areas it covers include:
- Employment practices liability. These types of claims deal with employee-related activity.
- Fiduciary liability. These claims encompass fraud or financial oversight (i.e. misuse of donor funds, improper allocation of employee benefits, etc.).
- Governance liability. These claims concern decisions made by the nonprofit’s governing body.
How to Prevent Lawsuits
For nonprofits that net less than $10 million per year, employment practices liability claims are the most frequent; they also tend to be the most expensive. However, with the proper risk management, nonprofits can reduce the likelihood of such lawsuits. One simple measure is to make sure the employee handbook is up to date and that it includes clear policies. It is also crucial to follow the handbook to the letter.
Another way to protect against employment practices claims it to be aware of the most common types. These include:
- Discrimination due to disabilities, gender, or race
- Incorrect employee classification (i.e. exempt, contractor, etc.)
- Retaliation (i.e. whistleblowers)
- Sexual harassment
Employment practice lawsuits can be a lengthy process. While many nonprofits want their day in court to prove their innocence, they often change their tune when the case drags on toward the one-year mark. D&O insurance providers can help resolve the claim faster without having to go to court.
D&O insurance is just one type of several policies that nonprofits must have to protect themselves. To learn more about what coverage options best suit your nonprofit’s needs, contact the experts at SteelBridge today.