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Directors and Officers coverage (D&O) may be as important to non-profit companies as it for other (for-profit) entities. People who volunteer their time and talent often want to know that their "volunteer" efforts don't end up in court...so knowing the landscape is important.
The most common areas of exposure for directors and officers include
The first, employment practices, is similar to that found in the for-profit world. This includes legal action arising out of discrimination claims, unfair termination, sexual harassment claims and similar employer/employee conflicts.The problem with many non profits is focus; many are too small to have
human resources departments or even an HR risk awareness. These can be mitigated with an attention to this area; more on things to do and what to watch out for is available here.
Conflicts of interest are more common in the non-profit area than in private business because profit for the business often passes directly to its owners. Not so here. When an officer or director puts their personal interests ahead of the organization, that's a violation of trust and when big enough, can result in financial or reputational loss.
Government enforcement includes provisions from laws, such as Sarbanes Oxley (Sarbox), which required many new obligations on both public and private companies. This law pertains to publicly held organizations, but two provisions apply everywhere: the Whistle Blower Law which protects people who blow the whistle on bad actors; and document retention rules. Clearly deleting documents which might be found embarrassing or evidential still fall under document retention rules (you can't just shred at will). Other government enforcement includes the requirement to file tax forms. The 990N for small organizations (less than $50,000 in revenue) and the 990 for larger ones.
Fiduciary duty breaches include: duty of care (working responsibly); duty of loyalty (closely related to conflict of interest); and duty of obedience (such as filing tax forms or working within Sarbox regulations).
There is some statutory immunity provided for directors and officers, particularly if unpaid. And many homeowners policies and personal umbrella policies provide liability protections for individual participating in these non-remunerated positions. But fraud and gross negligence will rarely get this coverage, nor legal immunity.
One solution for directors and officers is an offer of indemnification: where the organization agrees to cover or indemnify for legal expenses including judgments. This is usually funded by D&O insurance.
To discuss and quantify the cost of Directors & Officers insurance further, call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252. Prefer to type versus talk? Use the form to the left of this blog.
Legal & technical disclaimer: Any advice provided here is not legal advice. Statements or advice are based on our experience in risk control, mitigation and transfer, and is believed to be effective and valid when provided. All legal or contractual wording, including any suggestions offered in a legal context, should be reviewed by qualified legal counsel.
