LIABILITY INSURANCE FOR NONPROFITS
The Importance Of Directors And Officers
Liability Insurance For Nonprofits
D
irectors and Officers liability
insurance (D&O) is typically
thought of when considering
corporations and other large
companies. After all, they are
the ones out there dealing with the public,
making huge financial decisions that
could impact stakeholders, right? That’s
completely true. Aside from them, however,
the group that really needs protection
against D&O liability risks are nonprofit
organizations. Unfortunately, there is
a huge misconception out there that
directors, trustees, and officers of nonprofit
organizations don’t have a personal liability
exposure due to their positions.
The fact is, nonprofit officers often have a
job that proves to be even more demanding
than their counterparts in the business
world. That is simply because these
organizations are often less familiar to the
individuals that are put in those positions
and the nonprofits are often being run
under less than ideal conditions. Those
facts, however, are irrelevant when one
considers the legal standards of conduct
for these positions. Those standards are
just as high—sometimes higher—than the
standards that would be applicable to for-
profit companies. To make matters worse,
the damages that may be recoverable from
nonprofit officers who are found liable,
even if they work for a small nonprofit,
often exceeds their personal net worth.
There are two types of nonprofit
organizations, and each type faces its own
unique challenges: wrongful termination, and the like, all
of which are usually left out of general
liability policies.
• MUTUAL BENEFIT –
Formed to serve its members. This would
include social organizations, credit
unions, athletic clubs, co-ops, and things
like trade organizations. No two nonprofit organizations are exactly
alike, and neither are the policies that they
need. Having the right protections in place
is a key element in attracting and retaining
talent for your nonprofit. Do you have
the right policies in place to keep things
running smoothly up top? We can help.
• PUBLIC BENEFIT –
Formed to serve the public at large and
usually defined by some sort of criteria.
Could include churches, hospitals, civic
groups, libraries, etc.
When it comes right down to it, the
potential for lawsuits boils down to
decisions being made by nonprofit
management. Often, these types of suits
are going to have something to do with
the supervision of employees, how assets
are being used by the company, the way
the charter of the nonprofit is being
interpreted, or personnel decisions (such
as hiring and firing). Basically, anything
done by directors or officers in a decision-
making capacity could potentially lead
to a lawsuit, and it doesn’t always matter
whether the claims have a legal basis or
not because they will have to be defended
either way.
Another important thing to understand
is that general liability insurance and
umbrella coverage does not usually cover
D&O liabilities. Losses due to D&O claims
often stem from things like discrimination,
BY: ANDREW TURNBULL
STERLING INSURANCE
GROUP
Andrew Turnbull joined Sterling Insurance
Group in 2014 and has been a licensed
independent agent since 2002. Andrew’s
expertise is in the development and
implementation of creative Benefit, Property
Casualty and Management Liability programs
for private practice healthcare providers. He
also specializes in those programs for both
nonprofit and for-profit organizations.
Contact Andrew at aturnbull@sterlingagency.
com or (586) 843-2759.
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