Examining the Need for Nonprofit Directors and Officers Insurance

Examining the Need for Nonprofit Directors and Officers Insurance

Directors and Officers Insurance (D&O) is often associated with large, for-profit companies. However, they are not the only ones that need it. Many people hold the common misconception that Nonprofit Directors and Officers Insurance is not needed because the directors of a nonprofit don’t have a meaningful exposure to personal liability. However, the reality of today’s litigious society is quite the opposite.

Nonprofit directors and officers have to meet the same legal standards of conduct, and perhaps even higher standards, than those applicable to their for-profit counterparts. A variety of corporate constituents are potential claimants against nonprofit directors and officers. Damages that may be rewarded against directors and officers of even a relatively small nonprofit organization can easily exceed the net worth of many individuals.

It’s important for agents to be aware, when determining the need for nonprofit directors and officers insurance, that there are two types of nonprofits, each with differing forms of D&O exposure. The public benefit nonprofit organization exists to serve the community at large and a segment of the community defined by criteria such as need, religious affiliation, or academic interests. Examples include churches, museums, libraries, hospitals, schools, civic groups and community involvement organizations.

A mutual benefit nonprofit organization is formed to serve its members. Examples of this include trade associations, cooperatives, social organizations, athletic clubs, and credit unions. Other variables, which may affect the degree of D&O exposure, include whether the organization is operated as a corporation, trust or association, whether it is exempt from federal income tax as either a private foundation or public charity, and the number, wealth, and degree of interest of the organization’s constituents.

It’s estimated that about 20% of all U.S. corporations are nonprofit, thus indication an extremely large number of nonprofit directors and officers. However, a surprising number of them unknowingly face D&O liability exposure. This could be due to the fact that a significant percentage of these individuals are not experienced business people with experience as a director or officer, so they don’t have the knowledge of their legally recognized responsibilities and duties.

At PLRisk Advisors, we have the experience, knowledge, and markets to secure the policies your Nonprofit clients require. We can help secure Directors and Officers Insurance to protect them and their companies in the event there is an allegation that they have failed to perform their duties. Please contact us today for more information at (855) 403-5982.