What is…Nonprofit D&O Insurance

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Nonprofit D&O Insurance

Nonprofit organizations provide essential social services that benefit the community and their members. These organizations cannot survive without dedicated leaders to make major decisions on behalf of the organization.

However, even when acting in good faith, directors and officers of nonprofits expose themselves to risks with each decision they make on behalf of their organization. In the event of a claim, nonprofit leaders could suffer severe damage to their reputation and personal finances simply based on their decisions. In order to protect themselves, directors and officers (D&O) insurance for nonprofit leaders is crucial and can provide many benefits.

Claims Scenario: Revoking Donations

The entity: An animal shelter that regularly accepts donations from its members.

The challenge: The board of directors of an animal shelter was recently sued by a number of their long-time donors. While these members have been involved with the nonprofit for years, they felt the shelter was misrepresenting its financial status.

As a result, the donors demanded that they be repaid all the money they gave to the shelter. The shelter faced three separate lawsuits on this charge and defence costs exceeded $530,000.

Nonprofit D&O insurance in action: Nonprofits rely heavily on the donations and support of others. And while you may think that donations are simply gifts, they can lead to serious litigation risks in the face of misrepresentation or other alleged wrongdoings.

In the case above, D&O insurance is invaluable, as it helps nonprofits recoup the costs of legal expenses. What’s more, many D&O policies provide policyholders with access to legal professionals, who can help simplify the litigation process and ensure that nonprofits navigate lawsuit concerns quickly and efficiently. Nonprofits and their leaders often don’t have the funds to fight lawsuits on their own and, without the right coverage, could go bankrupt in the face of legal action.

Claims Scenario: How Litigation Can Make Nonprofits Nonprofitable

The entity: A nonprofit dedicated to cancer research and awareness.

The challenge: A

contracts several volunteers each year to help run cancer research events. One such volunteer who had been associated with the nonprofit for several years claimed the organization unjustly denied her for a full-time position.

Specifically, the volunteer alleged that she was passed over for a board position based on her sex. As a result, she filed a lawsuit against the nonprofit for damages nearing $100,000.

Nonprofit D&O insurance in action: Even if a nonprofit only hires a handful of full-time workers, just one employee-related lawsuit can irreversibly harm an organization and its leadership. In the case above, directors and officers were sued not by a partner or governmental body, but by a volunteer.

D&O claims can arise from a variety of situations—situations your nonprofit may not have considered. To prepare for a likely lawsuit, D&O insurance is a must. Not only do effective policies account for the unexpected, but they are customizable and include flexible limits. This means that, regardless of the type of work your nonprofit performs, a D&O policy can provide the protection you need.

Learn More About Nonprofit D&O Insurance

Though you may not realize it, board members can be held liable for the actions of the nonprofit organizations they serve. Specifically, even when acting in good faith, board members are subject to personal liability, which may affect their personal financial status because of their management decisions.

What’s more, dedicated D&O insurance is one of the best ways to attract qualified individuals to serve on your boards. When companies fail to provide protection for their leaders’ personal assets, individuals are much more reluctant to join a nonprofit’s board.

In order for a nonprofit to protect its company mission and its board members’ personal assets, D&O insurance is crucial.

Contact Narvaez Insurance Services in Napa, CA at 707-927-3204. Ask for Bernie Narvaez for details.

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