Why D&O Is Important for Nonprofit, Social and Human Services

What is Directors and Officers Insurance?

Directors and Officers (D&O) is a liability coverage that is tailored to protect the directors, officers and board members of an organization. Directors and officers can be found personally liable and having proper coverage allows board members to make decisions clearly without the worry of being sued. D&O coverage protects individuals and organizations from claims including negligence, misappropriation of funds and breach of fiduciary duty. These lawsuits are very expensive, can halt your organizations services and put your board members' personal assets at risk.

What are the benefits of D&O?

Most Nonprofit organizations do not realize how often these claims arise. Every decision a board member makes lends itself to potential litigation risks. Understanding, things like Hammer Clauses, Defense Outside the Limits, Cyber Coverage and a Lifetime Occurrence Reporting Provision (LORP) can go a long way in protecting an organization from closing its doors.

• A hammer clause is a consent to settle provision stating that an insurance carrier will pay up to a particular amount for a claim that could have been settled for a lesser amount and that the insured has chosen to continue and litigate.
• Defense Outside the Limits covers defense costs without eroding the liability limit of the policy
• Cyber Coverage can provide for defense and indemnity costs incurred when sensitive information (personal information, credit card numbers, financial statements, etc.) is compromised
• Lifetime Occurrence Reporting Provision provides former board members peace of mind for their decisions and actions in the event that their successors fail to maintain their Claims-Made coverage

A recent claim example illustrates the need for Directors and Officers coverage for Nonprofits Organization.

D&O Claim Example

The trustees of a charitable organization decided to expand their activities into areas that were not explicitly envisioned by the founders. Soon after, their state's attorney general brought an action against them alleging misuse of funds and property for operating outside their charter, even though no third party raised a complaint. The organization's insurer defended the claim and incurred $75,000 in defense costs.  Through reading this claim, it is apparent that D&O claims can be unexpected and could put your company in a daunting financial position. Luckily for this organization, they were carrying proper D&O coverage.

Obtain a D&O quote for your nonprofit, social or human services today!