What is Directors and Officers Insurance?

Non-profit organizations have very vastly different insurance needs then the average business. Non-profit’s do not generally have owners, shareholders or investors but are run by a board of directors. These board members guide the nonprofit in fulfilling its mission and are responsible for the financial solvency of the organization. If board members fail on either of these fronts they can be found personal liable. This means personal assets including but not limited to savings accounts, college funds, checking accounts and investments can all be won in a civil suit. It is essential that a nonprofit protects its board members from lawsuits and financial assessments. Directors & Officers insurance will pay for attorney fees, court costs and settlement up to the limit. This protects board members from having to use savings to defend themselves from frivolous and not so frivolous law suits. Directors and officers insurance is often combined with employment practices insurance and fiduciary insurance and is referred to as executive liability.

Directors and Officers Insurance has three basic parts; direct coverage for individual directors and officers when the organization is unable to defend them, reimbursement to the organization for indemnity of directors and officers and “entity coverage” for indemnity against similar claims made against the entity itself

Many different parties can bring a suit that would be covered by directors and officers insurance, including donors, clients, vendors, contractually joined entities, or other aggrieved parties.

Unlike some other kinds of insurance, there is no standardized directors and officers insurance policy. Most insurance companies write a few basic policy forms for sizes and classes of organization, and then “endorse” or add extra pages changing specific terms as needed. Differences between policies include everything from the definition of a “claim,” who is responsible for hiring and instructing defense council, your rights if you do not agree to a settlement as well as coverage amount.

It is unwise to compare policies based on price alone because the type of coverage can swing wildly between carriers. Remember, even the most fantastic, committed board member can be sued.
Things to discuss with your insurance broker:
1. What is important to your organization?
-Do your board members have a lot of assets? Do you want to control whether the insurance company settles? Do you want to use your organization's attorney?

2. What sort of lawsuits do you see in your organizations future?
-What does your organization do? Do you have high risk employees? Do you have a high risk clientele? Are you dealing with a lot of money? Do you have one large donor? Many smaller donors?