Is your D&O coverage good…or great?

As with many professional lines coverage, Nonprofit Directors and Officers (D&O) coverage is complex and policies vary widely from insurer to insurer. How can you make sure that your insured has adequate coverage for their nonprofit? See if your insured’s coverage is good… or great! 

Retroactive Date versus Full Prior Acts

Most D&O policies are triggered by a when a claim is filed against an insured (claims made trigger). Some policies  what is called a retroactive date. A retroactive date puts a restraint on how far back coverage will go for an event. Full Prior Acts does not set a date limit, and will extend coverage all the way back until the organizations inception.

Here is an example showing both types of coverage. A nonprofit opens its doors in April 2013 and painted all of its walls with a paint that contained lead. Policy A is effective April 2015 - April 2016 and has a Retroactive Date as of April 2015 and Policy B is effective April 2015 - April 2016 and has Full Prior Acts coverage. In May 2015, Lucy develops a disease that is attributed to her playing with and eating the paint chips that contained lead from the nonprofit. Policy A would not cover this claim because the event happened before the Retroactive Date. Policy B would cover this claim, because it has Full Prior Acts that extends back to the nonprofit’s inception.

Defense Inside the Limits versus Defense Outside the Limits

Defense costs can often prove to be the most expensive part of litigation. Even if a claim is groundless, lawyer fees, arbitration, unearned salary from missing work and more need to be paid to handle a claim. It is important to know whether your insured’s policy pays defense inside the limits or defense outside the limits. If a claim’s defense costs reach the per-claim limit for coverage, the insurer will no longer pay for defense costs. Defense outside the limits is the opposite, in which the insurer will continue to pay defense costs indefinitely.  This is especially important for a nonprofit whose operating budget is minimal. If the defense is only paid within the limits, it will not take long for a claim to force the nonprofit to close its doors, even if the claim is groundless.

Shared Limits versus Separate Limits

Nonprofit Directors and Officers coverage is often paired with Employment Practices Liability coverage. Though some nonprofits believe they do not need Employment Practices Liability Insurance (EPLI), they do not know that it often covers volunteers as well as employees, and that EPLI claims occur 90% more often than a GL claim. An important feature to look for in your D&O policy is whether the per claim and aggregate limits are shared or separated between the D&O and EPLI. This is important because if there was a claim against your EPLI coverage, you may not want that claim to erode the limits that you have for D&O.

For example, if a volunteer was sued for discriminating against the public during the course of working for the nonprofit, this would potentially trigger an EPLI claim. It could also trigger a D&O claim in which a manager is sued for not properly screening this volunteer. If you have Separate limits, each of these claims will have their own limit to defend and pay the claim.

Reimbursement versus “Pay on behalf of”

This is one of the most important portions of a policy for a nonprofit. If the policy states that the insurer will reimburse the insured, that means the insured has to front the money for the defense of a claim. The insurer will then reimburse them for qualifying defense expenses afterwards. This can be detrimental for a small-budget nonprofit, especially when they believed that they purchased insurance so they would not have to pay for defense costs at all. It is imperative to get a D&O policy that will “pay on behalf of” an insured during the defense of a claim. These simple words can save a Nonprofit from closing its doors.

Get an instant quote for your nonprofit D&O by sending the answers to the below questions to submissions@gatewayspecialty.com

-          Name of Nonprofit? -          Physical Address? -          Description of Operations? -          Total Annual Revenues? -          Number of full time and part time employees and volunteers?