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Why Nonprofits Need Directors' & Officers' Liability Insurance

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A nonprofit organization is operated for the benefit of some group of persons. Those individuals, together with employees, creditors, customers, members, state regulators, etc, are all potential plaintiffs against directors & officers of nonprofit organizations due to mismanagement. The fundamental responsibility of directors & officers is to judiciously represent the interests of the organization’s members and other constituencies in directing the business and affairs of the organization with in the law.

D&O insurance responds to protect an organization for the insured perils surrounding an allegation of a wrongful act. An important feature of a D&O insurance policy is defense costs coverage. The costs associated with defending an allegation of a wrongful act can easily and quickly exceed $50,000.

EXAMPLE CLAIM EXPOSURES FOR DIRECTORS, OFFICERS, OR TRUSTEES

Allegation of Wrongful Acts
Conflict of interests
Fraudulent conduct, reports, financial statements or certificates
Breach of contract
Torts
Violation of statute
Violation of provisions of articles or by-laws
Improper self-dealing
Acquiescence in conduct of fellow directors engaged in improper self-dealing
Transactions with companies in which officers or directors are personally interested

Allegation of Financial Mismanagement
Inefficient administration resulting in losses
Sale of assets for unreasonably low prices
Wasting of assets
Extension of credit where not warranted
Failure to ascertain whether extension of credit is warranted

Allegation of Mistakes or Errors in Judgement
Disclosure of material facts
False or misleading reports
Dissemination of false or misleading information
Permitting organization to make improper guarantees

Allegation of Negligence
Continual absence from meetings
Failure to examine reports and documents before sighing
Failure to detect and stop embezzlement of organizational funds
Failure to file annual report
Failure to require withholding tax
Failure to inspect organization books and records to keep abreast of its activities
Failure to supervise the activities of others in a proper manner
Failure to verify facts in official documents before sighing them and filing them
Shirking responsibility

If your organization has exposure to any of the items as identified, it is strongly recommended that Directors’ & Officers’ insurance coverage be secured. ​​