A Guide To Know When You Need D&O Insurance

As a nonprofit leader, you make decisions that keep the organization running. The success or failure lies in your hands. That’s a little dramatic, but it gets you thinking. So, as a Director or Officer, you handle financial and operational decisions all the time. What happens when one of those decisions doesn’t work out the way you intended and now a donor, for example, wants their money back? You give it back then, right? What if you already spent it on new equipment or the additional staff needed to grow that new program? This is why you need Directors and Officers Liability coverage.

Directors and Officers (D&O) liability protects the organization and its officials for claims of financial or operational damages as a result of decisions made by the board or the individuals in charge.

D&O is needed when a nonprofit establishes a board of directors or begins taking donations. It ensures that if someone sues for their donation back or mismanagement of funds, the money will come out of the insurance policy instead of the organization, or board member’s pockets. The personal liability or your board members individually can vary state to state, be sure to verify how your State defines personal liability for nonprofit Directors and Officers. Here’s a link to the recent change in Michigans D&O laws.

63% of nonprofits reported a Directors’ & Officers’ (D&O) claim within the last 10 years. That means out of the 1,571,056 nonprofits in the country, 989,000 of those filed a D&O suit. According to the Insurance Journal, the average cost to settle a D&O claim is anywhere from $35,000 to $100,000. If we meet in the middle, $67,500, to figure out how much was spent on D&O claims, my calculator gives me an “e” in the answer. In other words, a lot.

Some things to keep in mind – just because you have D&O doesn’t mean you have enough. We’ve seen reports of claim settlements far exceeding the D&O limit because the organization had minimal coverage. The remaining funds had to be paid by the organization and its board members personally. Making sure you have the right processes in place can help mitigate risks. Things such as the duel signing of checks, and having different individuals for approving spending, writing checks, accepting and depositing money are good places to start. One final tip, be sure to review not only your coverage but your policies and procedures at least annually. Let us know if you need any assistance.

Take the first step to discovering the right coverage and knowing your organization is protected

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