Three reasons to consider Directors and Officers Insurance for your New Hampshire or Vermont nonprofit
1. Directors and Officers are at risk due to their activities with your organization.
Many non-profits throughout New Hampshire and Vermont serve our communities, and one of your nonprofit’s most important assets is its board of directors. Board members volunteer their time and energy to oversee the decisions and activities made by your organization. The liability risks directors’ and officers’ face aren’t often realized until it’s too late – and unfortunately, happen without the right protection.
2. The Volunteer Protection Act (VPA) may not provide enough protection.
You might think board members are covered against whatever claims arise under the federal Volunteer Protection Act (VPA), but this isn’t always the case. You may consider directors and officers liability insurance (D&O) as an added protection for the rare instance your nonprofit board is faced with a lawsuit.
3. Vermont and New Hampshire nonprofit organizations are not immune to lawsuits.
Here are three of the top D&O Insurance claims:
Employee-related claims top the list of common D&O-related claims.
As with any organization, whether for profit or nonprofit, employee relationships present a risk, especially if an employee feels the organization was negligent or responsible for hurt or injury to the employee. This includes mental, emotional, and physical harm. Examples of employee-related claims include:
-
-
- Wrongful dismissal
- Discrimination or harassment
- Breach of employment contract
- Failure to address health and safety concerns
-
Claims filed by competitive organizations.
Non-profits are not unlike for-profit organizations when it comes to competition. Sometimes competitive organizations may feel wronged and file a lawsuit related to perceived wrongdoings such as
-
-
- Breach of intellectual property
- Misuse of trade secrets
- Anti-competitive acts
-
Claims filed by shareholders.
High-level shareholders feel a real stake in the organizations they support and therefore are likely to keep a close eye on operations and the board of directors who runs them. This scrutiny leaves directors and officers vulnerable to potential lawsuits.
Activities conducted by your organization can open you up to lawsuits. If you’re not sure if you need this type of coverage? Consider these important points about the VPA and D&O insurance to guide your decision.
Understand the limits of the Volunteer Protection Act for New Hampshire and Vermont nonprofits
The Volunteer Protection Act is a federal law designed to protect volunteers against allegations of harm. This law provides limited immunity for volunteers who do not receive compensation. However, it doesn’t protect against all actions and decisions. Additionally, it does not cover the cost of a legal defense.
D&O insurance is a tool that provides broad coverage to minimize potential risk and financial loss.
Weigh the potential risks to your Vermont or New Hampshire nonprofit
There are various risks your board of directors faces, many of which aren’t considered until it’s too late. Examples of potential risks include:
- Employment-related lawsuits such as harassment and wrongful termination
- Tax reporting and filing errors
- Failure to ensure compliance with regulations or state and local laws
- Claims of negligence in carrying out duties of care and diligence
The claims made against your board can come from a variety of sources, external and internal. For example, employees, competitors, creditors, and tax authorities might make claims. Additionally, donors may argue funds were not used in a manner consistent with your organization’s values.
Assessing potential risk is critical in deciding what coverage is needed and how much should be purchased. Your insurance professional can assess your risks and determine what type of policy is right for you.
Understand what New Hampshire or Vermont Directors’ and Officers’ Insurance covers
D&O insurance can provide coverage for various situations, but understanding protections upfront is key to mitigating risk. For example, potential lawsuits might include negligence claims, mismanagement, wrongful termination, employment disruptions, or sexual harassment. These are sometimes excluded from D&O policies and packaged as Employment Practices Liability Insurance (EPLI). Either way, you should get coverage (EPLI or D&O insurance) if you have a paid staff.
Examples of what Directors’ and Officers’ insurance may cover include:
- Actual or alleged wrongful acts
- Decisions with unintended consequences
- Omissions
A typical policy may include coverage for the defense costs and financial losses resulting from a claim within the limits of liability stated in the policies. Additionally, some policies cover claims on a “claims-made basis,” which means coverage is in place as long as the policy is in place. Others extend the reporting period, allowing claims after the policy expiration date. Check with your insurance professional to fully understand coverage and potential limitations.
Understand what isn’t covered
An excellent D&O insurance policy will cover a variety of situations. For example, does the policy include prior acts or coverage for previous board members?
D&O policies may have limitations and exclusions that consist of:
- Acting for personal profit
- Breach of contract
- Dishonest acts
- Fraud
- Intentional acts of noncompliance
- Claims made under previous policies
When faced with a claim, it’s crucial to act fast. Understanding whether a potential claim is covered will guide you in planning the next steps.
Understand your liability and risk exposure areas
Assess your risk exposure areas before you buy a D&O policy, and be clear about what you’re buying.
All policies aren’t created equally. A standardized D&O form doesn’t exist, and while D&O policies don’t protect against every potential risk, matching the right risks to the appropriate policy helps mitigate those risks in the future.
Avoid selecting a policy based only on the price. Price is important, but it’s also critical to weigh that price against potential scenarios for loss. What specific scenarios do your board members face? If the likelihood of particular risk situations is high, then it’s critical to select a policy that covers those situations even if the cost of coverage is higher.
Selecting a policy that doesn’t provide adequate protection could be a costly mistake in the future.
Moving forward with greater protection
A company is never “too small” for D&O insurance. General liability insurance typically covers limited situations, such as those related to bodily injury or property damage. Many scenarios aren’t covered under this general type of protection.
Your insurance professional can ask the right questions to understand your business’ risk exposure. Talk with them about their prior experience with D&O claims to determine where coverage is critical to mitigating loss. Providing complete coverage ensures peace of mind to those who voluntarily invest their time serving the interests of a company.
To consult an insurance advisor about Directors and Officers’ coverage for your nonprofit, call 800-392-6532 or email insure@colby-group.com.
This article is for informational purposes only. Insurance needs and coverages vary; therefore, the terms of your policy will be specific to your situation. We recommend that you discuss your insurance needs with a licensed agent for details on pricing, coverages, and exclusions.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.
Copyright © 2022 Applied Systems, Inc. All rights reserved.
