Most nonprofits operate on very tight budgets. One thing nonprofits can’t afford is an unexpected bill from a claim, especially if insurance could have been purchased to cover the expenses. Having the right insurance and agent can be critical to the overall success and health of your nonprofit.
The primary role of nonprofit directors and officers is to maintain financial stability and provide the necessary resources, direction, vision, and environment to accomplish the organization’s goals and mission. The unique nature of nonprofit organizations presents directors and officers with difficult challenges in performing this role.
Your board of directors and officers (many of whom may be volunteers) could be sued for their actions for many reasons. An example might be mismanagement of the nonprofit’s investments. If, during an economic downturn, investment returns are below expectations, the board could be sued for the selection of the investment advisor.
Typically, nonprofit Directors and Officers Liability Insurance will cover; administrative, civil, and regulatory proceedings based on actual or alleged acts, errors, omissions, misstatements, neglect, or breach of duty committed or allegedly committed by a director or officer while acting within the scope of their duties. The policy also reimburses nonprofit corporations for any indemnification required by their bylaws or state law for directors and officers.
Directors and Officers Liability Insurance claim examples:
A discrimination suit was filed against the board of directors of a nonprofit rehabilitation center when the claimant requested a transfer within the housing complex and was denied. The claimant alleged discrimination based on national origin, religion, and sex. The claimant was a resident at a drug and alcohol rehabilitation center. The court dismissed the case due to a lack of evidence. $15,000 was paid in defense costs.
A nonprofit was sued by an organization for improperly infringing upon the claimant’s intellectual property rights after using logos and images owned by the nonprofit in a fundraising program. The claim settled for over $400,000, including defense costs.
The current market for Directors and Officers Liability Insurance is competitive, with many markets writing coverage. Nonprofit Directors and Officers insurance protects the organization and its Directors and should be considered by every nonprofit.