Serving on a board of directors for a charitable organization can be a wonderful and fulfilling experience, but certain cautions should be taken. A well-informed lawyer will always suggest that individuals, particularly those taking a position on a board for a non-profit company, check to see if the entity has coverage for directors and officers (D&O) for nonprofit companies.
In this era, the prospective board member needs to be concerned, what with instances of some nonprofits facing financial difficulties. The need for insurance, as well as the importance of the quality and extent of the coverage, are critical issues that should be addressed.
Living in times of evolving fiduciary duties
Officers and directors of nonprofit boards, much like officers and directors of for-profit companies, have fiduciary responsibilities. These responsibilities include both the duty of care and the duty of loyalty in the name of trying to advance the charitable goals of these institutions. As a result, board members of nonprofit institutions are vulnerable to claims of wrongful conduct that will require officers and directors to defend themselves from such allegations. They also may face the possibility of substantial liability exposure, as well as be forced to protect their own personal assets.
Direct or third party lawsuits
An employee (or a person not connected with the corporation) may institute a lawsuit when asserting a claim against the board on account of some non-bodily injury.
Employment practices like termination and discrimination are generally the largest exposures in these types of claims. When an employee feels they have been wronged, they may file a claim, regardless of whether or not there is a basis for such a claim. A D&O policy is certainly needed in the event this type of allegation ends up in a courtroom.
D&O insurance is essentially legal defense insurance requiring an organization to pay the legal fees if a claim is filed. In many instances lawyers may file a suit based on an unsubstantiated claim with the hope of securing a settlement for their client. When considering D&O insurance for directors and officers for nonprofit companies, employers should understand that D&O policies vary greatly. Some policies can be rather expensive and come with coverage limitations. When shopping for a policy it is best to speak to an agent that is familiar with this coverage.