Directors & Officers Insurance
You’re feeling philanthropic; you want to give your time so you accept an invitation to sit on a nonprofit board of directors of a meaningful organization you’ve supported for many years. Then, imagine there’s an allegation against the organization and you’re named in the lawsuit because you’re a member of the board of directors.
“Wait, I didn’t sign up for this!”
But in reality, you did. Why? Because you’re on the board of directors and are making formal decisions on behalf of an organization which automatically exposes you to personal liability for that organization’s actions. Suddenly, legal costs, judgments and/or settlements related to the organization’s action can affect your personal assets.
So, how do you protect yourself so that you can participate in this important philanthropic activity?
Simple answer: there’s insurance for that!
Directors and Officers Liability Insurance (D&O) not only attracts and retains quality people to the board of directors but also covers the directors and officers of an organization for negligent acts and/or omissions and for misleading statements that result in suits against the organization. D&O insurance helps to provide coverage for the assets of the organization as well as the personal assets of its directors and officers.
What could happen?
Directors and officers claims have sadly become more common. A claim against your organization’s leadership can mean costly civil, criminal, judicial, administrative, regulatory and/or arbitration proceedings. According to Pamela Davis, president, and CEO of the Nonprofits Insurance Alliance Group, in an interview with Blue Avocado, 95% of D&O claims are employment-related such as wrongful termination, sexual harassment, and discrimination.
How much does a D&O policy cost?
There are many variables that contribute to determining the policy premium. Pricing a D&O policy is literally “organization-specific”. As an example, a start-up organization with no employees could be in the range of about $750-$1,000 while a larger organization with employees could be upwards of several thousand dollars depending on the experience of the claims filed.
Underwriting criteria includes but is not limited to:
- Nature of the operation
- An outline of claims experience
- Financial stability
How much insurance should the organization have?
Agents struggle with this question because no one can predict when a lawsuit will arise or for how much it will settle. Anyone can sue at any time for any reason. The insurance is in place to defend you against the allegation in or out of a court of law. Some start-up organizations may start with a limit of a $1 million dollars. Other organizations with experience, employees, and higher financial assets should consider more and would depend on what financial assets are at risk if found guilty.
Other considerations that broaden the coverage could include the following:
- Broad definition of a claim includes written demand for monetary and non-monetary relief, arbitration, administrative proceedings, as well as civil and criminal actions.
- Optional selection of counsel – Insured may choose defense counsel or tender the defense to the Underwriter.
- Defense Costs are in addition to the Limit of Liability.
- Definition of Individual Insured includes lawful spouse/domestic partner, the estate, and heirs
As you can see, this can be either simple or complicated with the various types of coverage available for the exposure at risk. Finding an insurance professional to help guide you through the process and determine the coverages will aid in the review and determination of coverages and costs in order for you to choose. You do not want to discover after it’s too late that you have gaps in your coverage that could have been avoided.
Rey Insurance Agency is a family and women-owned insurance agency. They assist with many different types of personal and business insurance that will help you navigate life’s events.
Thank you to Linda Rey, AMIM, for contributing this article.