Does My Nonprofit Need D&O Insurance?

We know, insurance talk… boring.  But this is an important aspect of your business and we are, of course, here to help!  However, the decision on how much insurance, if any, to get for your nonprofit is a decision that implicates your own tolerance for risk.  Let’s unpack that a bit.

What is it?

D&O Insurance is a type of liability insurance suitable for nonprofits.  Such insurance policies guard against losses and/or provide advancements for legal defenses against claims of the nonprofit’s alleged wrongful conduct.  Insurance funds are payable to directors/officers of the nonprofit, or to the nonprofit itself.

To be simplistic, the fundamental aim of D&O Insurance is to safeguard the personal liability of directors/officers of a nonprofit.  However, policies can also protect whole classes of people in the nonprofit, rather than just an individual.  Such policies are similar to malpractice insurance policies in the medical and legal fields.  

“The market for D&O Insurance is quite competitive, allowing agencies of all sizes to obtain broad coverage at reasonable premiums.”  These policies “can take different forms, depending on the nature of the organization and the risks it faces.”  In addition, several policies offer zero deductibles.  Generally, policies can guard against a host of hazards associated with operating a business, including civil liabilities (excluding fraud) and certain criminal liabilities.  More detail can be found from the following resource, or, for a more comprehensive look at policies for nonprofits, this resource.

Much like every other type of insurance policy, there are several carriers that offer various, competing plans, pricing, and coverage.  Although this article intends to provide a general overview of D&O Insurance, it is important to understand that you should do some shopping of your own to compare the various carriers in your area and see which policy is right for your nonprofit.

What are the benefits?

As we said before, D&O Insurance helps guard against personal liability of the directors/officers of a nonprofit (AKA it keeps you safe!  Mostly…)  A laundry-list of the benefits of this coverage is below; consider it your “pro” list (any “cons” are up to you to determine!):

  • Monetary payouts for defenses against numerous types of civil liability that can arise from operating your nonprofit;
  • Monetary payouts for defenses against certain types of criminal liability, though limited based on the charge;
  • Peace of mind for yourself during the stressful and busy operation of your nonprofit;
  • Peace of mind for your employees, coworkers, and other third-parties that you may do business with; and
  • Helpful for recruiting directors and officers
How much coverage should I get?

The quandary of how much coverage you should get for your nonprofit is a sliding-scale based upon a number of personal factors, including:

  • The level of risk adversity that you feel in life (i.e. are you a daredevil risk-taker or a more conservative and better-safe-than-sorry type person?);
  • The level of risk involved in the business that your nonprofit embarks upon (i.e. what kind of work does your nonprofit do and how “risky” is that work from a legal standpoint?);
  • The financial strength or fragility of your nonprofit that would come into play if a problem were to arise (i.e. how well could you defend against and/or pay out potential liabilities without an insurance policy backing you up?); and
  • A related, financial point that concentrates on whether or not you can afford a D&O Insurance policy at this time, and if so, how much coverage can you afford?

Whew!  We know this is a lot to digest and a lot to consider.  Bear in mind, however, that the decision whether or not to obtain D&O Insurance (and how much coverage to get) is all about personal choice.  Although it is often recommended to be insured, at least minimally, some instances may not require such steps.  After considering the various factors in this article, you should look into the carriers and policies available in your area.  If you have any remaining questions, feel free to reach out to your legal buddies at Wilkinson Mazzeo to help make the insurance decision that is right for your nonprofit.  

By:  Zachary Avina  –  05/18/17

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