Does the Charitable Board You Sit on Have D&O Coverage?


The rewards for voluntarily sitting on the board of a non-profit aren’t always positive.

Anyone who sits on a charity’s board or serves as a trustee can be held personally liable for decisions made by the organization. It doesn’t matter whether it’s a local community non-profit or a big global concern. If a court finds that investments have been mismanaged or a federal employment law has been violated, even the most comprehensive general liability policy won’t help. General liability insurance only reimburses for bodily injury or loss of physical property, whereas D&O coverage(aka Directors and Officers Liability Insurance) insures losses resulting from decisions made by directors and officers on the board.

The immunity laws in most states that protect volunteers from being personally liable for a board’s decisions typically apply only if the board is found to have acted in good faith. If it can be shown that fraud or some other kind of deliberate malfeasance was committed , every board member may be held accountable. Immunity coverage tends to be quite limited and does not necessarily provide protection against federal law suits arising from discrimination or other violations of an employee’s, job applicant’s or client’s civil rights. Other potential risks of suit can include libel, slander, breach of contract, breach of fiduciary responsibility, conflicts of interest, waste or mismanagement of the charity’s funds,  failing to exercise proper supervision of investment and making unwise investments.  As to that last matter, some individual donors are considering suits against board members who invested their non-profit’s money in a Bernie Madoff fund! 

Before you accept the responsibility of serving as a director or trustee, ask if the organization has D & O insurance coverage (also known as Directors and Officers Liability Insurance). If they do, ask to read the policy. If they don’t, reconsider taking the position or start looking for D & O insurance quotes. In some cases, your own company or firm may make D&O coverage a condition of your service.  If you opt to buy your coverage, you may find it offered as an independent director’s liability policy. While you’re reviewing your board’s D&O (or shopping for a D&O policy or IDL policy), keep in mind that the average cost of defending against D&O claims in 2007 was over $2 million, according to Towers Perrin, a professional services firm. Make sure your policy has adequate limits to protect you and the organization.  Your good deed as a volunteer could end up costing you your home and your saving, plus you’ll have to foot the bill to defend yourself.

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