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The Easy Way to Protect Yourself as a Non-Profit Board Member

December 2, 2014

Directors & Officer Liability Insurance

Image courtesy of David Castillo Dominici/freedigitalphotos.net

A not-for-profit’s board of directors is the community’s connection to the institution and its operations. The board is the source of governance and, in many cases, the fundraising. The non-profit’s success hinges on the selection of a competent, reliable paid director who works within the parameters set by the board.

It’s the paid director’s job to run a smooth day-to-day operation, but it is the board that is ultimately responsible for the organization. That’s why the operations of the non-profit also make individual board members vulnerable to lawsuits.

What if the board hires a director who mismanages the money? Or an employee sues for sexual harassment? The non-profit’s members, employees, or the public can bring lawsuits naming board members as defendants if they feel the board has made bad decisions.

That’s where Director & Officers Liability Insurance comes to the rescue. And why Gary Scalzo and Steve Zogby recommend Directors & Officers Liability Insurance for every not-for-profit board serving in Central New York.

You might wonder, since charitable institutions are protected by their own property and general liability insurance, why you would need D&O insurance. That’s because a Commercial General Liability policy pays for bodily injury and property damage. The individual board members can be sued for their breach of duty, for making bad decisions or wrongful acts. There may not be any bodily injury or property damage in these suits, but the amount of damages and the cost to defend can be substantial.

For example, one big worry expressed to us by our clients and that we are concerned with here at Scalzo, Zogby & Wittig is the often volatile employer/employee relationship. Workers are suing their employers for racial discrimination, pregnancy discrimination, age discrimination, sexual harassment, and as whistleblowers. Our clients on local boards are vulnerable to these lawsuits even though they serve voluntarily.

That’s why a strong Employment Practice Liability section of a Directors & Officers policy is so important. The thing to remember is that though most of these suits are without merit, your D & O pays the costs of attorneys to defend you against these claims.

So whether you are a youth sports organization or serve the disabled in your community, you are vulnerable just like any business. Some of the key benefits in the D&O policies of most of the companies we represent include:

  • Non-Profit Directors & Officers Liability including Personal & Advertising Injury
  • Employment Practices Liablity
  • Fiduciary Liability
  • Workplace Violence
  • Internet Liability

Remember, Directors & Officers Liability Insurance covers you as a board member for lawsuits other than bodily injury and property damage. It covers you for lawsuits involving accusations that you are not running or managing the non-profit in a proper way. And even though a lawsuit could be without merit, if one occurs, you would accrue defense costs.

Also, we don’t recommend you rely on your homeowners insurance policy for your actions as a volunteer board member. That policy also only covers for Bodily Injury and Property Damage liability. There is nothing there for lawsuits involving your management decisions at a non-profit.

The best thing for you to do if you serve as a volunteer board member is to call us to get us on the agenda of your next board meeting. We’ll talk about protecting each board member personally for the very real exposures they face governing their non-profit.

Until next time,
Your SZW Team

Scalzo, Zogby & Wittig, Inc. is your New Hartford area independent insurance agent. Call us for a quote on insurance for your home, car, business, or life at 315.792.0000.