Almost all non-profit organizations are governed by a board of directors. This board is often comprised of volunteer members that share a common goal or interest. Their job as a board member is to direct the activities of the organization, the employees and volunteers in order to fulfill a mandate. In providing this direction to the organization, they open themselves up to personal liability for alleged wrongful acts. A Non-Profit Directors & Officers insurance protects board members from personal financial liability, allowing them to focus on achieving their mission.
Non-profit directors and officers can be held personally liability for decisions or acts they make, or decisions and acts made by other directors. More importantly, damages from a lawsuit could encompass a director’s entire personal estate. It is therefore critical that a proper non-profit directors & officers insurance policy be in place.
What is covered
Directors & Officers insurance protect against claims alleging wrongful management acts while performing the duties required of board members. Such wrongful acts could include alleged errors, omissions, misleading statements, and neglect or breach of duty. Note that most policies will provide protection even in the case that the allegations are false, since legal defense costs would be incurred to disprove the allegations.
Who is covered
Non-profit Directors & Officers insurance typically covers the board members, officers, employees and volunteers, as long as they are acting on behalf of the non-profit.
The policy would typically cover the following types of costs:
- Legal and defence costs
- Regulatory and criminal defence
- Settlements and judgements
Who could file a lawsuit
Almost anyone that feels they incurred a loss could file a lawsuit. Here are a few examples of who might file a lawsuit.
- Current and former staff/volunteers
- Vendors or partners
- Other board members
- The tax authority
Most common lawsuits
The most common claims under a non-profit directors & officers insurance policy include:
- Acting beyond the mandate or authority
- Provide incorrect advice
- Breach of fiduciary duty
- Improper use of funds, or financial misconduct
- Failure to govern appropriately
These claims are most likely to occur if there is extreme financial distress or bankruptcy, termination of employees or major board room disputes.
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