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Community associations, special interest groups, foundations, and other nonprofits contribute to the fabric of our community. They work as important advocates for groups or causes and deliver vital services used by millions of people every year. Most for-profit businesses are already keenly aware of the need for different insurance products to protect themselves against the risks they face on a daily basis but nonprofits are a bit behind in this regard. Nonprofit D&O can help!
Nonprofit organizations need to make the best use of their resources and make big things happen on a very small budget, so many will optimize their spending for social impact and find it hard to justify certain expenses. But it is exactly this reason that it’s important for them to invest in protecting the organization and its directors and officers.
Getting caught up in an expensive lawsuit can lead to cash flow issues, may halt operations, and will negatively impact everyone who relies on your services.
Do I need Nonprofit D&O insurance?
As much as we don’t want to believe it, nonprofit organizations are equally as vulnerable to lawsuits as for-profit companies. Getting caught up in an expensive lawsuit can lead to cash flow issues, may halt operations, and will negatively impact everyone who relies on your services. The organization’s assets and even the personal assets of your leadership team could be at risk.
Many legal issues can be guarded against using a Commercial General Liability (CGL) policy but there are some important exclusions in a CGL policy that leave a nonprofit exposed. To ensure the sustainability of your organization, you should consider investing in Directors and Officers (D&O) insurance as part of your risk management strategy.
Many nonprofit leaders take on the job because they have a passion for the cause, and may not be well-versed in the duties and rituals of corporate governance. Directors and Officers insurance protects against losses caused by negligence or honest mistakes made by your organization’s directors and officers. Not only will it cover any amounts you’re required to pay should you lose a lawsuit, the insurance company will even pay for your legal fees and court costs. This is important because even though your nonprofit may be run by a perfect leadership team, just the cost of defending a frivolous lawsuit can cripple your ability to operate.
What is Nonprofit D&O insurance?
Generally speaking, directors and officers have a legal responsibility to perform their duties in good faith, act within the confines of the organization’s bylaws, and place the interests of their organization and any stakeholders above their own.
Lawsuits against nonprofits and their directors can stem from any number of reasons. The most common ones allege:
- Improper HR Practices or violations of employee legislation such as not paying wages on time, wrongful dismissal, discrimination, or improper classification of employees.
- If creditors or donors believe funds were handled negligently, they could sue the nonprofit and its leadership to recover losses. This is most common when the nonprofit makes an investment that loses money.
- Fiduciary liability such as improper fundraising, improper revenue reporting or mishandling of donations or employee benefits plans.
What kind of D&O Insurance do I need and how much does it cost?
Like with anything in the financial services, it pays to have expert advice. There are many types of non-profits, each a different size and with a different mission. Our application form will ensure that the policy you get is customized for your specific nonprofit operations.
We can help you understand different policy wordings and work together to create a competitive insurance package that is tailored to your unique risks while falling within your organization’s budget.