Nonprofit Directors and Officers Insurance

Providing Business Liability Insurance in Austin, Round Rock and All of Central Texas

Does my non-profit organization need D&O insurance?  The answer is always a resounding “yes”.  No non-profit entity should operate with D&O coverage for several reasons:

Your organization’s Bylaws require it

Most entity have fairly standard organizational bylaws, and almost all standard bylaws contain a provision that requires the organization to indemnify its board members.  If the bylaws pledge indemnification, and a claim occurs, the board members are going to turn to the organization seeking indemnification.  The organization will be duty bound to pay for the defense of the claim.  That wither comes from a D&O policy or the organization’s bank.  It will not come from the General Liability policy

You want your organization to be a good steward of the money you raise

You care about your organization’s purpose.  Your donors care about your organization’s purpose, too.  Being a good steward of the money you raise, means making sure donations go toward the purpose of the organization and not excessive legal fees.  D&O insurance is not all that expensive.  As a donor to a non-profit, I would much rather have a small percentage of my donation go to annual insurance premiums, then all of it going to a law firm to defend a claim of wrongdoing.

You can’t afford it

Insurance pays for damages, but it also pays for indemnification.  The cost to defend a lawsuit can often exceed the amount of damages.  Non-profit directors and officers claims are extremely expensive.  One claim can wipe out an organization, a year’s worth of fundraising, or a significant chuck of reserved capital.  Don’t risk your organization’s financial health.

Directors and Officers versus Management Liability

Directors and officers policies are management liability policies.  Sometime referred to as management E&O policies, they protect the Board Members (or officers in a for profit entity) from claims of mismanagement.  These claims can come from other board members, staff and employees, and third party customers or vendors.  While a general liability protects your entity from sudden and accidental occurrences, an E&O policies protects the entity from erroneous decisions.

What is a claims made policy?

Directors and officers liability policies are “claims made” policies, like all errors and omissions liability policies.  This is critical to know, because coverage exists only as long as the policy is in effect, or as long as the entity is in an “extended reporting period” or “tail”.  If the policy lapses, coverage going all the way back to the inception of the first policy disappears.

What are some common non-profit D&O claims?

Claims can take on many forms, but the most common are:

  • Mismanagement/misapplication of the entity’s money
  • Failing to maintain records
  • Discrimination in membership
  • Practices and activities exceeding the scope of the organizations bylaws

Defense costs are very high in management liability lawsuits

The cost to defend a lawsuit of this type can easily stretch into the 10’s of thousands of dollars.  Once recent noted the average cost to defend a D&O suit to be $35,000 on the low end to $100,000 on the high.  As these are the averages, it is pretty clear the cost to defend a D&O lawsuit can easily cost more the $100,000.

The importance of directors and officers liability coverage for non profit organizations

Many qualified board members will refuse to be a part of your organization without sufficient D&O coverage.  As your organization tries to attract talented potential board members, a lack of D&O insurance will scare many potential board members away.  For those board members that do volunteer for your organization, without D&O insurance, their personal assets are in jeopardy.  D&O insurance protects your board member’s personal assets from lawsuits against the organization.

Directors and officers insurance coverage limits and coverage parts

It is crucial that the insurance you carry contains sufficient limits for the amount of exposure your organization faces.  Let Sunstone Insurance Agency help you determine the right limits of liability for your non-profit organization.

We recommend that organizations carry at least $1,000,000 per claim / $1,000,000 aggregate.  Anything less, and we recommend that you make sure the defense costs are outside of the limits of liability.  This insurance that the high defense costs do not use up all of your liability limits.

Employment practices liability may be part of a comprehensive management liability policy.  If you can secure employment practices liability as part of your organization’s D&O policy, you would be wise to do so.  Let Sunstone Insurance Agency shop for a comprehensive management liability policy for your organization.

Marissa Brinkman
Marissa Brinkman
21:48 18 Feb 20
Rhett and Debbie are efficient, friendly, and informative! They have excellent customer service and a very quick turnaround.
Cindy Brummer
Cindy Brummer
23:36 17 Feb 20
Rhett, Debbie, and the team at Sunstone are my go-to. They make sure I have the right amount of coverage for my company and that I'm not overpaying. When I need documents or have questions, they are quick to respond and help me. For example, when I needed to increase cyber coverage last year, they did the research quickly, let me know my options, made a recommendation, and we were able to increase coverage. Even better bonus -- the increase wasn't as much as I had expected. Woo-hoo!
William Hines
William Hines
18:27 21 Sep 15
I highly recommend Rhett Braniff for you insurance and risk management needs.I have known Rhett for a long time, so I trusted him with my insurance. Insurance for my business is important to me, and I wanted to make sure I was properly covered. When my policies were coming up for renewal, I asked Rhett to review them. After looking them over, Rhett was able to identify some key areas of my coverage that needed attention. He presented me with several options that allowed me to get great coverage that fit our budget. I secure with my insurance, and I didn’t have to spend a lot to do it.Most of all, Rhett made it easy. He broke down the various coverage areas in easy to understand language, and was able to answer all of my questions. Rhett was sensitive to my time constraints, and didn’t unnecessarily burden me with the process.I recommend Rhett for all your personal or commercial insurance needs.

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