Negotiate the Terms of a D&O Policy
A not-for-profit organization needs insurance to protect its directors and officers from personal liability in the event of a lawsuit.
Don't fall into the trap of thinking this coverage isn't necessary. Some states have "safe harbor" statutes that are supposed to protect directors and officers of not-for-profit organizations from lawsuits. However, these statutes are not a substitute for directors' and officers' insurance. The protection varies by state and usually doesn't cover all damages and legal defense costs.
D&O coverage is negotiable, so take the following steps before you get down to the specifics of your policy:
Get the best insurance agent. You want someone to help find the right coverage, not just sell an insurance policy.
Consult a lawyer. The only way to scope out the breadth of your exposure is to talk to legal counsel.
Review your current coverage. Know what you're currently insured for so you can compare that with a D&O policy.
When you sit down to negotiate, the exact provisions depend on the nature of your organization and its management structure. Discuss the following issues:
- What is the deductible that applies to each claim?
- How much will the insurer pay for legal expenses, settlements and judgments?
- What is the time period required for making a covered claim?
- What claims won't the policy cover? Some acceptable exclusions include:
1. Claims the organization makes against its directors.
2. Claims against a director not related to the organization.
3. Deliberate fraud.
- Cancellation of the policy should be allowed only for failure to pay the premiums. The insurer should be required to give at least 90 days notice of non-renewal.
- Is there "employment practices" liability to cover any claims brought by current or former employees?
- Does the policy include multiple-year pricing to avoid sudden boosts in premiums?
- Coverage of outside directorships and non-officer employees named in a covered suit with officers and/or directors.
- Ask your insurance broker and lawyer specific questions about how the coverage works in daily circumstances. Think up specific situations that you want to be covered and put them to the test.
Let's say you have staff members conducting door-to-door activities. You probably want a policy that protects against off-site liability. If you rely heavily on volunteers, you need a policy that addresses that situation rather than a less-expensive generic policy.
D&O insurance doesn't cover everything you could possibly be sued for. Unlike automobile insurance, the coverage is custom-built for your organization.
Shop around, compare policies and get price quotes. With careful planning and some smart shopping, you should be able to find a policy that best suits your organization and lets everyone breathe a little easier.
Know Your Duties
Joining a board can be prestigious and a good career move. But directors must act honestly and in good faith when carrying out their duties or they could be held personally liable. Here are some tips to protect yourself as much as possible:
Study the organization. Understand its structure. Many charities provide this information to new board members in an orientation manual. If your organization doesn't have a manual, have one made and update it at least once a year.
Attend all board meetings. If you miss a meeting for any reason, get a copy of the minutes and any material considered in your absence. If you're concerned about anything, ask questions.
Document everything. All decisions and discussions at the meetings should be recorded. If you cast an opposing vote or abstain, be sure the vote is in the minutes.
Get advice. When taking a major step as a director, get professional advice in writing. And declare any conflict of interest.
Ask for verification. In some non-profits, board members insist on seeing a copy of the bill for D&O insurance, along with verification that the premiums were paid.