A nonprofit organization in 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.

Aon Association Services, a division of Affinity Insurance Services, Inc.