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Non-Profit Directors and Officers Insurance Basics
By Scott Simmonds, CPCU, ARM, CMC
Directors and Officers Liability coverage can be a confusing and expensive area for nonprofit organizations. There are significant differences in coverage offered by different insurance companies. Decisions regarding D&O can not be made on price alone. Here are some points to consider when looking at Directors and Officers Insurance
Directors and Officers liability insurance pays on behalf of the insured director or officer…
…for loss arising from claims during the policy period
…by reason of wrongful acts made while acting in their individual or collective capacities.
Directors and Officers Insurance can pay for suits against the "entity". In the absence of entity protection coverage only applies to suits brought against directors or officers.
D&O insurance is protection against a breach of "duty" by the directors and officers. D&O pays for actual or alleged wrong decisions. D&O does not pay for bodily injury or property damage - general liability does.
D&O policies are "claims made" contracts. They respond to claims that are brought during the policy period. The making of a claim is generally the notice of a lawsuit. Policies also include a "retroactive date" - a requirement that coverage only applies to acts that occurred after a specific date.
Defense costs, including lawyer's fees, are included in the limit of insurance in most D&O policies.
Some examples of claims under D&O:
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Employment related issues such as discrimination, sexual harassment and wrongful termination.
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Failure to provide services.
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Mismanagement of assets.
Unlike most insurance contracts there is no "standard form". Each policy contains unique provisions and conditions. Key points:
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Does the policy provide coverage for actions brought against the "entity" or is coverage only for the "Ds & Os"?
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Does the policy provide payment for the cost of defense as part of the limit of liability or is it a separate limit?
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Is there coverage for employment related practices? What events are included in the definition of "Employment Related Practices"?
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Does the policy exclude claims brought by one insured against another insured?
- Are suits brought due to failure to buy the proper insurance excluded?
- Can the insurance company settle a claim without your approval?
Volunteer service is no defense for improper acts. State shield laws provide no protection for actions prohibited by federal law (ADA, ERISA, Civil Rights Laws etc.).
Directors should not depend upon personal insurance to protect the in their volunteer work. A personal umbrella insurance policy only protects you from claims arising out of "bodily injury and property damage". A poor decision while serving on a nonprofit board is probably not bodily injury or property damage.
For More In Depth Info Go Here
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