Directors and Officers Liability Insurance for Nonprofit Organizations

Nonprofit organizations must manage many of the same risks and exposures as businesses. However, many nonprofits may need more financial security and resources than their for-profit counterparts. With that in mind, a nonprofit organization may be more susceptible to more lasting consequences from financial losses, such as errors or alleged acts committed by directors and officers. Fortunately, an adequate directors and officers (D&O) liability insurance policy can provide critical protection.

What Is Directors and Officers Liability Insurance?

As its name suggests, D&O insurance provides financial protection if your leaders are targeted by lawsuits alleging they were responsible for another party’s losses. In response to such allegations, D&O coverage may provide financial assistance to organizations and leaders on a personal level while helping pay for various legal expenses, including representation, settlements and court-ordered judgments.

D&O lawsuits may arise from many accusations and sources. Employees, vendors, investors, customers and competitors may all think they have reason to file a claim, such as a nonprofit’s leaders allegedly committing the following acts:

• Mismanagement
• Misuse of funds
• Reporting errors
• Misrepresentation of assets
• Fraud
• Violation of workplace laws or regulations
• Theft of intellectual property
• Breach of fiduciary duty

Although the details of D&O policies can vary, standard policies generally include the following types of coverage:

• Side A coverage—If a nonprofit organization cannot provide financial protection for the personal assets of its leaders, this coverage can do so.
• Side B coverage—This coverage can reimburse an organization for losses related to defending its directors and officers from lawsuits.
• Side C coverage—Also known as entity coverage, this component of a nonprofit’s D&O policy can provide financial protection for claims against the organization.

Why Is Directors and Officers Liability Insurance Important?

As a nonprofit’s leaders manage the organization and make decisions regarding its future, even innocent errors or false accusations could have irreparable financial ramifications. Given the limited resources of many nonprofits, even having to defend themselves from a single erroneous lawsuit could incur devastating losses. Furthermore, many top candidates for leadership positions with nonprofits may be hesitant to expose themselves and their personal assets to these risks without the assurance provided by a sufficient D&O policy.

Get the Right Coverage

We’re here to help. At Andergray Insurance Services, we have over 30 years of experience serving nonprofits in metropolitan areas nationwide. Our agents are well-equipped with the knowledge and dedication to assess and address organizations’ coverage needs. Visit our website or call 213-769-8001 to get started today.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.