11/19/2024
Why Buy Directors & Officers Coverage For
NonProfit Organizations
1. Nonprofit director and officer boards can be sued by donors,
employees (prospective, current or former), the general public, third
parties, clients and/or government agencies
2. The personal assets of the individual board members are at stake!
Directors and officers (D&O) insurance can help protect a board member’s home, investments or other personal assets
3. The bylaws of the nonprofit may indemnify the board but does not guarantee the entity has the resources to fund the cost of a claim; the financial backing of a directors and officers policy will ensure financial solvency to the organization
4. Directors and officers lawsuits can have a devastating impact on the operating budget of the nonprofit organization and can even put the entity out of business
5. The average cost of a directors and officers policy is often under
$1,000 with zero retention, yet the average cost of a claim is over
$100,000
6. Directors and officers claims are not covered under general liability or any other policy form
7. Corporate scandals have heightened regulation of accounting practices; the Sarbanes-Oxley Act has also impacted nonprofits
8. The Internal Revenue Services has increased their scrutiny of nonprofits; over 400 private foundations have been audited in the past year
9. Directors of nonprofit boards have the same fiduciary duties as corporate board members; nonprofit directors and officers lawsuits may involve a variety of issues related to daily operations of the board including:
Duty of care – Require directors and officers to act prudently and
reasonably in regard to the management of the organization’s affairs
Duty of loyalty – Prohibits directors and officers from using their
positions in the organization to further their own personal interest
Duty of obedience – Requires directors and officers to ensure that the organization is run in accordance with its charter and bylaws and that the organization complies with applicable laws
