Why Non-profit and Corporate Board Members and Officers May Need D&O Insurance

Directors and Officers Insurance Protects Decision-makers

Whether you serve on a corporate or non-profit board of directors, you may have many responsibilities: setting or approving a vision for the organization, approving a strategic plan and taking steps to maintain the organization’s relevance in the years ahead.

Directors and Officers Liability Insurance, commonly known as D&O Insurance, may help protect you when serving as a director or officer on behalf of an organization. For example, a D&O Insurance policy may provide coverage for:

  • Costs to hire a lawyer to defend you if a lawsuit is filed against the organization
  • The amounts needed to pay for a covered judgment in a lawsuit against the organization as a result of shareholder actions, reporting errors or inaccurate disclosure
  • Defense costs or amounts needed to pay a judgment for negligent failure to comply with regulations or laws

“Directors and officers, and their respective organizations, continue to be susceptible to a much wider range of claimants than in years past,” according to Larry Racioppo of Towers Watson, and author of the 2012 Directors and Officers Liability Survey.

Directors and Officers liability insurance by sector

What industries experience the most D&O lawsuits? Advisen, Ltd. found that 31% of suits occur in the financial industry, with information technology, industrial and health care seeing a smaller share.

D&O Insurance Coverage for Publicly-Traded Companies

As a corporate board member, it’s important to understand the three types of D&O coverage:

  1. Side A — covers personal liability of an organization’s directors and officers as individuals
  2. Side B — reimburses the insured organization for paying the claim of a third party on behalf of its managers in order to protect them
  3. Side C — covers claims against listed stock companies for "wrongful acts" in connection with securities trading

D&O insurance typically excludes coverage for fraudulent, criminal or intentionally wrongful acts.

D&O Insurance for Non-Profits and Volunteers

People that volunteer their time to serve on non-profit or charity boards of directors could face exposure from lawsuits. If you volunteer on a non-profit organization’s board of directors, you may want to ask whether the organization has D&O insurance coverage. It is wise to review the structure, liability limits and deductibles of your non-profit board’s D&O insurance policy to protect you should you face a legal challenge due to your service on the board.

When Becoming a Board Member, Talk with Your Insurer

Serving as a board member, whether for a public or non-profit company, may have an impact on your personal insurance policies — and do not assume that your personal insurance will cover you for these activities. That’s why when you purchase an umbrella insurance policy, your insurer may ask if your volunteer activities are covered by a D&O insurance policy. If you are asked to join a board, check with your insurance company to see whether this activity is covered and/or has an impact on your coverage.