D&O is Often Overlooked
Do you need Directors & Officers Liability Insurance (D&O)? YES! Board members and officers can be held personally liable, and a D&O policy is the best way to protect them. D&O can sometimes be called Management Liability Insurance. D&O protects the organization AND individual board members and officers from wrongful acts in the management or operation of the organization. It is hard to attract talent to your board if you are not willing to protect their personal assets, yet D&O coverage is often overlooked by nonprofits due to cost or the misconception that it is included in the General Liability policy or the individual’s homeowners policy. The reality is quite the opposite.
You Need to Protect Your Board Members!
Nonprofit board members and officers are held to high legal standards, even more so than their for-profit counterparts, which makes nonprofits more likely than for-profits to have a D&O claim filed against them. Should a lawsuit arise, it could be devastating if not covered by a D&O policy. The average settlement against a nonprofit is $457,000 with attorney fees costing between $35,000 to $100,000. Common claims against nonprofits include misuse of donor-restricted funds, improper conduct of volunteers or employees, discrimination, wrongful termination, failure to accommodate, and sexual harassment.
Employment Practices Liability (EPL) – Protection against claims for wrongful termination, discrimination and harassment. Volunteers can make claims under employment practices, so you need this coverage even if you don’t have any employees. You can purchase this coverage with shared (with the D&O coverage) or separate limits. We always recommend that you consider the separate limits if you can fit within your budget.
Wage & Hour Coverage – Protection against claims for violations of wage and hour laws. Wage & Hour is always written as a sub-limit of the main coverage and provides defense only. It cannot pay fines or penalties if you are found to have violated wage and hour laws. This coverage is increasingly difficult to get in California and sub-limits vary widely between carriers.
Third Party Coverage – Protects the board against EPL type claims brought by contracted third parties – usually due to discrimination or harassment.
Unique Risks of Nonprofits
Nonprofits have unique risks. They often work extensively with the most vulnerable in their communities as well as with volunteers. Most nonprofit board members are volunteers and yet they are charged with setting the policies and procedures for the organization. Often board members are have a deep passion for your mission yet they are inexperienced in board governance. These and other risks unique to nonprofits should be considered for a risk management plan.
Looking towards 2020…
2020 presents a particular challenge as Property and Casualty premiums are expected to increase across the board with D&O premiums going up the most – 5% to 35% for nonprofits. Directors & Officers Liability Insurance (including Employment Practices Liability) is an essential part of any nonprofit risk management program, and while it may be tempting to skimp, the risks are too great.
Working with a broker who specializes in nonprofits, like CalNonprofits Insurance Services, to find the best coverage at the best price will pay off in the long run. We understand the unique needs of nonprofits and we can help you identify and understand those risks so that you are paying for the right kind of coverage. Contact your CalNonprofits Insurance Services team today!