INsurance 101 for non-profit directors and officers — what you need to know
By Dan Weedin, CIC
Many businesspeople and individuals serve our community by volunteering their time as directors or officers on non-profit boards. Although your service may be both beneficial and personally rewarding, there are some pitfalls to contemplate before you jump into that role.
Has your association or group purchased Directors & Officers (D&O) Liability Insurance? If not, sprint for the door before you’ve even warmed your seat! “Not for Profit” does not mean “Can’t Be Sued.” And even if this vital coverage is in place, it is prudent to take a close look at what protection it provides to you as an individual director or officer.
A D&O policy’s primary purpose is to protect individual directors and officers against personal liability and financial loss arising out of wrongful acts allegedly committed in their official capacity by transferring this risk to the insurance market. Some examples of potential claims include:
- Mismanagement of assets
- Failure to provide services
- Employment-related issues such as discrimination, harassment, and wrongful termination
This type of policy is written on what is called a claims-made basis. How is this different from your standard business or personal policy? For one thing, the coverage responds when a claim is brought forth, not when the alleged incident actually happens, which is the likely situation for any of the above-mentioned scenarios. In addition, there is often a retroactive date that establishes when coverage begins. Any occurrence prior to that date would not be covered by the policy. This retroactive date generally coincides with the start of the policy, so if you switch companies, make sure that the same retroactive date applies to the new policy as well.
Be aware that your personal insurance excludes any liability that you take on for these duties. If you have a personal umbrella policy, it might give you some liability coverage for serving on a non-profit board, but you need to review the language closely. Talk to your personal insurance agent if you have questions about what your umbrella policy covers, but in any case do not depend solely on your umbrella.
D&O policies also differ from your standard policy in that there is no “standard.” Each contract should be reviewed for key issues. Here are just a few:
- Does your policy include defense costs in the limit of insurance? If not, the dollars that were supposed to pay for damages can be eaten up by attorney fees.
- Who is covered? The non-profit organization? How about the actions of employees and volunteers? How about you? Find your Insuring Agreement and read it carefully to ensure that it covers everyone who needs this protection.
- Does the insurance company have the right to settle a claim without your approval?
- Is there coverage for employment-related practices? This is crucial if the board has responsibility to hire, discipline, or terminate employees.
The bottom line? Don’t get dinged in the course of your civic contributions. Perform an earnest review of your non-profit’s D&O Insurance policy at least annually. Your organization, and you, will be better off for it.
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Toro Insurance Consultants, Inc. offers unbiased solutions for your insurance and risk management challenges. We never accept fees or commissions from insurance companies or agents. We are your insurance advocate. You can contact Dan Weedin at 360.697.1058 or dan@toroic.com.
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Please note that Dan Weedin is available for any of your professional speaker needs through his business Dan Weedin Presents!. Dan provides keynote speaking, educational workshops, and other services that help improve his clients’ ability to meet their business goals. Please visit www.danweedin.com or contact Dan at 360.271.1592 for more information.
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