Serving on a Non-Profit Board Can Be Risky Business

It’s common for successful individuals to take on board positions for non-profit organizations as a way of offering leadership skills and connections to serve local communities.  However, these organizations and their directors and officers can be exposed to lawsuits. 

According to a Towers Watson 2013 D&O survey1, 63% of its non-profit respondents had been subject to a D&O claim in the past 10 years. The Nonprofit Risk Management Center2 reports that 85% of all non-profit insurance claims filed under D&O liability policies are employment related.  Even if allegations against you as a board member are groundless, you will incur costs to hire an attorney, which can add up very quickly when defending a claim. 

How Are You at Risk?

A wrongful act could come from:

  • Acts such as employment-related discrimination, slander or defamation; wrongful failure to employ or promote; or wrongful demotion
  • Conflict of interest, breach of contract, or fraudulent financial statements
  • Mismanagement of funds such as assets being sold for unreasonably low prices or wasting assets
  • Errors in judgment such as dissemination of false information, misleading statements or improper guarantees
  • Negligence such as breach of duty, failure to review documents before signing, or failure to detect or stop embezzlement

Claims could be filed against you by parties outside of the organization including donors or beneficiaries; organization members or employees; other directors or officers of the organization; or government officials.

While the nonprofit you are serving may have D&O insurance, is there enough coverage to protect against claims brought against the current board, past board members and even volunteers?  It’s important to understand the scope of coverage and limits of liability provided to make sure you are protected. 

How can you protect yourself from these potential risks? 

Talk with your insurance agent about extending coverage for non-profit directors & officers service from your personal excess liability or umbrella policy or, if this option is not available with your carrier, consider purchasing a separate D&O policy. And, make sure the coverage includes costs for defense coverage.  This will allow you more time to focus on helping and serving and less time worrying about the risks and a potential claim. 

 

Carrie McHale

Managing Director, Personal Lines

Contact: cmchale@tpgrp.com / 503.726.5668

Carrie McHale is affiliated with Geneos Wealth Management, Inc.

 

 

 

1 https://www.advisen.com/pdf_files/us-private-d-o-market-spotlight-aig-2013-08.pdf

2 https://nonprofitrisk.org/search/employment.asp

Information courtesy of Nationwide Private Client

2018-10-15T12:13:50+00:00

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