Does a nonprofit need D&O insurance?
A nonprofit organization should buy D&O insurance at the bare minimum, and then may add other coverages depending on their size and scope of operation.
With the average claim against non-profit directors and officers costing around $35,000 to settle, it is necessary for non-profit organizations of all sizes to secure D&O insurance.
General Liability Insurance
A general liability policy insures your nonprofit organization against classic slip-and-fall scenarios. (It's sometimes also called a "commercial general liability" or "CGL" policy.)
While D&O insurance is not an absolute must-have for every single business, it should be strongly considered by businesses and organizations that could be accused of financial mismanagement.
D&O insurance claims are paid to directors and officers of a company or organization for losses or reimbursem*nt of defense costs if legal action is brought against them. Such coverage can also extend to criminal and regulatory investigations or trial defense costs.
Most nonprofits pay a median of $70 per month for directors and officers (D&O) insurance, but you could pay more or less depending on your risks. Insurance costs for nonprofit businesses are based on a few factors, including: Nonprofit services offered, such as counseling or pet adoption.
Directors & Officers insurance is one of the policies that can help protect your business and personal assets. However, it does not cover intentional criminal activity. This includes activities that involve fraud, forgery, insider trading, or any other illegal behaviour.
Professional Liability Insurance:
Also known as Errors and Omissions Insurance, this is crucial for nonprofits offering professional services. It protects your organization and the professionals you employ from claims due to errors or omissions in the services provided.
Directors' and officers' liability insurance – also known as D&O insurance – covers the cost of compensation claims made against your business's directors and key managers (officers) for alleged wrongful acts. Wrongful acts include: breach of trust.
Employee Participation. Most California medical insurance companies require that at least 60 to 70 percent of the eligible employees actually enroll in the medical insurance plan offered by the employer.
How much D&O insurance is enough?
Many lawyers argue the minimum for any public company regardless of size, should start at 5-10 Mill. Public companies also generally have more complex towers with multiple layers of coverage, including Excess Side A insurance.
So, although there is no statutory requirement to have D&O Insurance, not having this type of cover leaves officers and directors exposed to potentially costly legal claims.
The cost of D&O insurance is based on a variety of factors, including the type of business, your company's revenues, whether you have had prior legal claims, and the amount of debt.
- Different situations require different D&O solutions.
- Side A – Non-Indemnifiable Loss.
- Side B – Indemnifiable Loss.
- Side C – Entity Coverage.
- What is excluded on a D&O policy?
Any business with a corporate board or advisory committee should consider investing in D&O insurance, including non-profit organizations. Your company does not have to post revenues in the tens of millions of dollars for your directors and officers to be personally sued over their management of company affairs.
D&O insurance helps protect the nonprofit entity and its current and past staff members, volunteers, directors, officers, and trustees from these types of allegations—and more. Insuring Over 100 Types of Nonprofits. Affinity Nonprofits offers D&O coverage to a wide variety of nonprofits organizations.
While your nonprofit may or may not be required to carry liability or property insurance, funders, venues, and contract agreements routinely require insurance as a condition of engaging in an agreement. It's up to each nonprofit organization to determine what coverage is necessary.
Many nonprofits start with a Business Owner's Policy (BOP). It includes three essential coverages that can help protect your nonprofit organization, such as: General liability insurance to help cover claims that your nonprofit caused bodily injury or property damage.
Companies usually purchase D&O insurance because lawsuits are expensive, and the costs associated with them are rising. Moreover, if companies do not have a good D&O insurance program in place it is unlikely that they will be able to attract top managerial talent, given the potential risks involved.
It's not uncommon for D&O policies to include one or more exclusions focusing on conduct. Policies usually exclude fraudulent or criminal misconduct as well as losses relating to illegal profit.
What triggers a D&O claim?
For there to be coverage, there must be a triggering claim, and most policies include a definition of what constitutes a claim. Typically, claims can include civil lawsuits, administrative proceedings, criminal proceedings, and the resultant demands for damages or other relief.
Directors and Officers (D&O) insurance: If your LLC has a Board of Directors, your board members or appointed officers could be personally sued by employees, investors or competitors over the management of the company. D&O insurance will cover these legal costs and keep their personal assets protected.
If your organization doesn't have any employees, you can purchase $1 million in D&O limits for approximately $600 each year. If your organization has employees, you can pay around $1,200 for those with just a few employees to around $4K to $5K for up to 50 employees.
In California, nonprofits must submit audited financial statements for gross revenues over $2 million. For revenues below $2 million, a financial review is permitted instead of a full audit. Illinois follows a similar sliding scale policy based on revenues.
D&O insurance helps protect nonprofit directors, officers and managers against exposures ranging from fiduciary malfeasance to wrongful termination claims. It helps cover the defense costs, settlements and judgments that could arise for allegations brought against a nonprofit organization.
