D&O Insurance for Nonprofits: Important Considerations

Is your organization equipped with nonprofit volunteer insurance? If a lawsuit against your nonprofit organization names individual employees as well as your directors and officers, your policy limits could be depleted in defense of the employee(s), unless you have separate limits specific to your directors and officers. 

Reserving separate limits of liability for directors and officers can provide vital protection. Consider, for instance, an employment-practices lawsuit names the executive director and the human resources director, in addition to the board. Normally the additional limits would apply once underlying limits have been exhausted. If D&O coverage is written with a $1 million limit, consider the benefits of a minimum additional $1 million dedicated limit for directors and officers, especially if the D&O limit is shared with the policy’s employment practices liability and fiduciary coverages.

The Qualities of a Strong Policy 

These are important attributes for your nonprofit volunteer insurance and D&O insurance to have: 

• All past, present and future directors, officers, employees, volunteers, trustees, committee members, independent contractors and the entity itself are covered. Also, the severability feature protects all the remaining insureds if it transpires that any individual insured provided false information on the application. 
• The standard limit of liability is $1 million, and limits of up to $5 million are available. 
• Deductibles begin at $500. You can only opt for a higher deductible, and therefore lower your premium. 
• Broad coverage, including employment practices liability. Make sure you are covered for: wrongful termination; failure to hire or promote; discrimination, sexual harassment, claims alleging mental anguish and emotional distress, libel, slander or defamation; invasion of privacy; wrongful entry or eviction; false arrest; false imprisonment; malicious prosecution; and infringement of copyright, or trademark or other unauthorized use of title; and plagiarism. 
• Single combined limit, or separate. It’s your choice between a single combined limit for all wrongful acts, or you can choose separate limits – one for employment practices liability, and one for all other covered acts. You can choose a separate limit for directors and officers themselves, so limits are not depleted in a lawsuit involving an employee. 
• Punitive damages can be covered in states where those damages are insurable. 
• The insurer pays all defense costs up front. You don’t have to hire attorneys or in any other way manage your own defense. 
• Defense costs do not reduce your limit of coverage. 
•  “Claim” is defined very broadly. A “claim” is triggered as soon as you receive written notice that someone intends to hold you responsible for a wrongful act. When the claim is triggered, so is your defense. 
• Prior acts are covered.
• The policy cannot be canceled by the insurer except for nonpayment of premium. 
• “Two-way” extended reporting period. If either you or the insurer chooses to nonrenew coverage, you automatically are provided a 60-day extended reporting period for claims, and you have the option to purchase an additional period between 1-3 years. 

About VIS

Volunteers Insurance Service Association, Inc. (VIS) was established in 1972 for the purpose of providing insurance and risk management services for volunteer-based organizations. In addition to still providing these insurance services today on a nationwide scale, we have expanded to provide noninsurance resources for members to manage their risks and improve their operations. By transferring the volunteer risk exposure to our program, we can help you protect your organization. Contact us today at (800) 222-8920 today for more information on our programs and services.