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D&O: Why it Matters?

By Heather Brown
February 02, 2018

From domestic violence shelters, to youth-at-risk organizations, to social clubs, there are more than 1.5 million registered nonprofits in the United States. Nonprofit organizations play a vital role in supporting and strengthening their communities with services and programs. To do so, you rely on a small budget and strong volunteer base which makes it vital to have the right insurance in place to protect your mission, services, and efforts.

Since nonprofits rely on small budgets, it is common to look for ways to save money. One expense you can’t afford to cut is your insurance. General liability, commercial property, and directors and officer’s liability insurance policies are all vital ways to protect your nonprofit. Directors and officer’s liability insurance is also a great tool to recruit and retain a strong board of directors.

What is Directors & Officers Insurance?

Directors & Officers or D&O insurance protects the personal assets of board members when claims or lawsuits are filed against the board. Claims or lawsuits can be filed by the nonprofit’s employees, volunteers, or donors and are based on accusations of mismanagement of the organization.

While the D&O policy doesn’t keep claims from occurring, it does help keep expenses at a minimum for the board members and the nonprofit. And it prevents the board of directors from having to pay defense expenses out of their personal finances.

Why Do You Need it?

In short, D&O insurance offers a valuable protection. Here are the top 4 reasons you need to keep or purchase it:

  1. Nonprofits can be sued.
  2. There is no coverage on your general liability policy.
  3. 63% of nonprofits have been subject to a D&O claim.
  4. Many directors refuse to be part of a board without it in place.

What are Common D&O Claims?

Still not convinced? Let’s take a look at common directors and officers claims that could impact your nonprofit.

  • Misrepresentation

 

Donors can file a lawsuit if they believe the board misrepresented the financial well-being of the nonprofit to gain more funding. Government entities can also file lawsuits if they suspect misrepresentation on grant proposals or funding requests.

  • Discrimination

 

Whether its volunteers, employees, or other board members, discrimination is a serious threat that can destroy the board members’ and nonprofit’s reputations. If a volunteer or employee believes they weren’t granted an opportunity due to their sex, religion, or race, they can press charges. A board member believing they were not re-elected to their position due to any of these issues can result in a lawsuit as well.

  • Mismanagement of Funds

 

Nonprofits regularly promote their services via fundraisers or donation requests. When donors contribute to your organization, they expect the funds will be used for what you promoted. If they find funds were used for a different project, it is considered mismanagement of funds and grounds for legal action.

The cost of D&O insurance varies depending on your carrier. But the money and time it saves you when a claim occurs is well worth the premium expense.

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