The people you put in charge of your nonprofit organization are expected to serve as representatives and spokespersons of your cause. So, what would happen if they were accused of wrongdoing? Regardless of whether it’s warranted, such accusations and any consequent lawsuits could result in financial consequences. Thankfully, a specific type of liability coverage reduces your risk — learn more about how D&O insurance can help minimize the harm to your organization and protect it from further monetary and reputational damage.
What Is D&O Insurance?
Also known as directors and officers liability insurance, D&O insurance provides coverage for individuals from personal losses if they’re sued while serving as a director or officer of a business or organization. D&O policies can provide legal fees and other costs incurred by the business or organization because of a lawsuit.
Typically written on a claims-made basis, D&O policies must be in effect when the alleged wrongful act occurred and when the claim is made. This contrasts with other types of liability coverage like employment practices liability insurance and errors and omissions (E&O) insurance, wherein the policy in effect at the time of the incident is the one that responds.
D&O policies typically focus on monetary damage and cover the losses directors and officers may be liable for due to managerial decisions. Additionally, D&O policies also include what’s known as a “shrinking limits” provision, under which defense costs reduce the policy’s limits. This means the costs of defending the claim can diminish the funds available for settlement or to pay a judgment.
Why Do Nonprofits Need D&O Coverage?
Like for-profit organizations, nonprofits are staffed by directors and officers making managerial decisions. And in both cases, those directors and officers can face legal responsibilities and lawsuits in the event of an alleged wrongdoing. For nonprofits especially, such litigation can be expensive and even catastrophic.
D&O insurance can offer protection for nonprofits facing significant financial damage due to alleged misconduct or wrongdoing, but it can also help safeguard your organization’s most valuable asset — its reputation. How outsiders view your organization is directly tied to its recruitment, retention, and fundraising. So, if any allegations were to damage that perception, a D&O policy could help minimize the harm to your organization.
Before purchasing a D&O policy, the nonprofit experts at Springly recommend asking yourself the following questions:
- Has your organization faced allegations in the past? What did they cost your nonprofit?
- How great is the risk for your nonprofit? How large is its footprint?
- Can your nonprofit afford not to have insurance?
- Will not having insurance make it difficult to recruit anyone knowing they could face personal liability?
- Which insurance carriers are immediately available to you? Do they offer the coverage options you need?
The Unland team can help find the D&O policy that best fits your organization and provides the coverage you need to protect your leadership and employees. Learn more about our professional liability options or call (309) 347-2177 for more information.