D&O Insurance – The Basics For Nonprofit Boards

1 Oct

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Lately, during a presentation to a group of nonprofit board members, I learned that some in the audience were not conscious of the dangers they faced as board members. This write-up explains why buying Director and Officer Insurance is an essential element of every nonprofit organization’s risk management strategy.

Background – What responsibility does a Board of Directors have?

The United States federal and state laws spot the responsibility of ensuring the purpose, plans and policies of nonprofit organizations on the board of directors. To govern correctly, nonprofit boards ought to be certain that the organization’s mission (written in the articles of incorporation and filed with the state) is accomplished and that the organization’s plans and policies are suitable and being adhered to.

What is D&O Insurance?

Nonprofitrisk.org defines Director & Officer insurance as “insurance that supplies coverage against wrongful acts which may incorporate actual or alleged errors, omissions, misleading statements, and neglect or breach of duty on the element of the board of directors and other insured persons and entities. Several D&O policies include employment practices liability coverage.”

Director and Officer Insurance could cover the expense of legal counsel, out-of-court settlements, and court-ordered compensation payments. With out this insurance coverage, legal costs to defend against a law suit could drastically damage your organization’s finances or even force your organization into bankruptcy.

Why is D&O Insurance needed?

All nonprofit organizations ought to sustain a current D&O insurance policy and no one must agree to serve on a nonprofit board unless they are sure that sufficient insurance covers them for possible liabilities.

If an employee, a member of the organization, a volunteer, a donor or even an individual from the common public thinks that the nonprofit hasn’t operated legally or according to its founding principles, they can sue the board of directors. Defending against these charges can demand expensive legal counsel, out-of-court settlement costs, or court-ordered damages may possibly be incurred. (NOTE: Even if the charges are not valid, legal counsel may be essential to defend the board members who are named in the law suit.)

Research show that Human Resources-associated issues are the most frequent cause of law suits against nonprofit boards. This includes charges of illegal employment practices or negligence when hiring or firing personnel, dealing with contractors, or managing volunteers. Other causes of law suits include conflicts of interest, not adhering to contracts, or utilizing donations for other than their intended objective.

Where can I get D&O Insurance?

Most insurance organizations offer D&O insurance. Your state’s nonprofit assistance organization might advise you on insurance carriers that offer nonprofit D&O Insurance in your state.

Usually, the cost of a policy is based on the nature and size of the nonprofit and regardless of whether legal and/or settlement fees are covered. Moreover, some policies consist of a “lifetime extension” which offers coverage to board members even immediately after they have left the board or the insurance policy has been cancelled.

Finest Practices for D&O Insurance for your board

The Treasurer of the board is typically accountable for obtaining an proper insurance policy for an organization. The Treasurer need to evaluation the D&O policy annually to be sure that the coverage continues to be enough for your evolving organization.
Appear into Employment Practices Liability Insurance while you are seeking at D&O Insurance. This insurance covers the nonprofit for Human Resources related grievances (sexual harassment, discrimination, etc) which are becoming a lot more widespread over time.
The bylaws of the nonprofit organization typically state that board members are indemnified (protected from prospective law suits) as lengthy as they are attending meetings, paying interest to board decisions, and speaking up when they are in disagreement with choices. Right here is an instance bylaw that pertains to D&O Insurance:

“Every director and officer shall be indemnified by the corporation for legal costs plus liabilities, fines, penalties and claims imposed upon or asserted against him or her (like amounts paid in settlement) unless he or she is judged liable since of gross negligence or prepared misconduct in the functionality of his or her duty as a director or officer.”

Include a discussion of your D&O Insurance coverage in your board’s annual orientation session that is attended by all board members. This discussion must incorporate who is insured, the quantity of the insurance coverage, the expense of the policy, and the warning that board members are not covered if they are not effectively-engaged in the choice-creating of the organization.

Don’t shy away from this situation.

Forward this article to your board’s Treasurer right now and ask inquiries about your D&O Insurance coverage. Ask that a presentation about your coverage be made at the next board meeting. Make certain that you are insuring your organization against a liability that could surpass your organization’s asset value. If you are a board member, make certain that you are indemnified as a volunteer of your organization.

54 Responses to “D&O Insurance – The Basics For Nonprofit Boards”

  1. Isidro January 17, 2013 at 7:54 pm #

    I am a Junior in senior high school and that i was lately brought to careers inside a nonprofit organization. I did not get enough information but I must. After I use the internet I can not find a lot of solutions to my questions.

    1. Basically wanted to possess a future within this area what can I major in?

    2. Which kind of careers exist?

    3. Just how much does each career make?

    4. Will it be easy getting a job once i finish senior high school?

    Solutions could be very useful and I’d greatly appreciate them.

  2. Luna January 17, 2013 at 11:02 pm #

    4.Do you consider it’s simpler to determine a moral work atmosphere inside a nonprofit organization? Why or why don’t you?

  3. Bobby January 18, 2013 at 3:24 am #

    After I was at the eighth grade I come up with a little number of buddies and that we started just a little group in class to make the college a eco-friendly place. Which was successful. However, I wish to make things more severe. Im only 14 but when Im 18 I must possess a boutique for unprivileged female teens with low earnings families to look at. There’s this girl, Allyson Ahlstrom, who did a business for example that one but she targets female teens in promote care. She is the owner of her very own boutique and it has many contributor who offer her money. Transpire is when Im 18, possess a boutique and also have my volunteer buddies beside me working there. We are giving every being approved teen free clothing of her choice. I e-mailed a large number of companies and stuff but to ensure that me to complete a grant for donation I have to be considered a 501(c)(3) nonprofit organization. What is THAT And Just How Can One BECOME ONE. Below I’ve got a couple of questions

    1) Any famous companies who donate money to nonprofit organizations?

    2) Could it be difficult to become 501(c)(3) organization?

    3) Are you able to list me the steps to become a licensed organization

    4) Simplest strategy for finding and purchase a boutique…with donation money.

  4. Brady January 18, 2013 at 2:58 pm #

    I am beginning a brand new club inside my senior high school in which the goal would be to make others conscious of injustices along with other calamities around the globe. Can anybody help have some nonprofit organizations that people can lead to or help with? We have already began to utilize Invisible Children, however i desired to expand the club a bit, branching out into other areas around the globe like Asia, South Usa, etc… And dealing with poverty, hunger, education, health, etc… I simply can’t appear to locate any non profit organizations. Help please?

  5. Enrique January 18, 2013 at 6:18 pm #

    A film producer want to make use of the logo design and title in our nonprofit organization to advertise a film and also the production company. We want a disclaimer on paper to safeguard the title and status from the nonprofit organization.

  6. Beulah February 6, 2013 at 7:50 am #

    my friend is starting a nonprofit organization in malaysia KL for Cats and Dogs. But we are not too sure on the laws on it and where to get a licence. We will need donations but we don’t want to get into trouble with the authorities. We’ve found a great place in the residential area far from the main road. I so need more info. Please help!

  7. Roman May 4, 2013 at 1:37 am #

    As opposed to private sector jobs and corporations, what are some advantages of working at nonprofit organizations? I am interested in nonprofit organizations and am seriously considering getting a job in one once I graduate from college. Thanks for your answers.

  8. Alfonzo May 6, 2013 at 8:00 pm #

    I just read an article on CNN.com that mentioned a nonprofit organization named Planting Peace. I was wondering if anyone has ever heard of it? Donated to it? Sometimes you never know what is legit and what is a scam on the Internet, so any help would be appreciated!

  9. Neil May 26, 2013 at 8:23 pm #

    I am currently residing in a Nonprofit Organization Shelter Ministry! The Head Pastor Gave my family and I a verbal eviction! Is there a Law in regaurds to this matter and what are my rights?

  10. Vince June 11, 2013 at 9:30 am #

    I am at the point in my planning process where I need to name my organization. My charity/nonprofit organization will be collecting goods and monetary donations for all types of shelters in the Northern Colorado area. The goal of the organization is to provide basic everyday necessities to the “less fortunate” in my community. Please help with ideas!
    Well yes I understand that. I am in the PLANNING process, like I said. I know what forms to file. And I since I’m in the the PLANNING process, I have not started collecting donations or anything. I am looking for a name to put on my forms. But thank you for your concern.

  11. Daniel July 1, 2013 at 11:38 pm #

    Im looking to open a nonprofit organization. Does anyone know how I can get it up and running for as little money a possible? Or were I would find money to get it started.

  12. Izola July 2, 2013 at 11:41 am #

    can a highschool student start a nonprofit organization relating to health? if so where should I start making a difference?

  13. Gerry July 2, 2013 at 7:44 pm #

    I want to start a nonprofit organization without a ton of lawyer fees. Is Legal Zoom credible?

  14. Brock July 3, 2013 at 5:51 am #

    I want to establish a nonprofit organization to educate on the red flags to look for in the home a child is being molested and teach communities on how to protect themselves from sexual predators. What kind of degree is befitting for this?

  15. Daniela July 3, 2013 at 7:10 am #

    I have a direct loans from the government and I have heard that you can get your loans forgiven if you work at a nonprofit organization. Is this true? Where can I find more information about this? Does it only work with certain nonprofit organizations?

  16. Ernest July 3, 2013 at 11:31 am #

    I am interviewing the founder of a nonprofit organization (that provides food to underprivileged children and their families) for a report assigned in my English class on someone who has impacted their community.

    I have some pretty basic questions but what are some good ones I should include to gather the appropriate information?

  17. Tyra July 4, 2013 at 1:58 pm #

    I am looking to start a nonprofit organization in a small rural town. My research has only just begun, but it feels like the best route to take with this particular project. Any experience with the area of paid staff and how their employment may be different from a for profit business would be greatly appreciated. Thanks!
    PS The business project is a Community Learning Center that picks up where our federal government services leave off: child care, after school program, tutoring, and a homeschool supplement program.

  18. Kerrie July 4, 2013 at 6:51 pm #

    We would like to establish a nonprofit organization for non english speaking services. What would be the first step in that process?

  19. Chester July 4, 2013 at 6:51 pm #

    I”m considering setting up a nonprofit organization for some volunteer work I enjoy doing. What is involved in setting up a nonprofit organization, in Michigan? Do I need to file certain paperwork with the state? If so, what agency do I apply to. Are there special forms that need to be completed. Do I need a board to oversee the organization? Are there certain guidelines that need to be followed? Do I need a business plan?

  20. Nellie July 5, 2013 at 6:51 am #

    For my senior project, I want to do a series of fundraising activities and maybe try to open it for both online and offline donations. I want to know if, in order to do so, I would need to register a nonprofit organization in order to avoid running into problems with the law.

  21. Glenn July 5, 2013 at 10:08 am #

    How does a nonprofit organization obtain a small (<100' cutter/patrol) decommissioned Navy/Coast Guard ship? The potential uses would include training Sea Cadets, JROTC, and use in SAR/education operations with the Coast Guard Auxiliary.

  22. Lashonda July 5, 2013 at 3:25 pm #

    I was interested in starting a nonprofit organization as a hobby, and was wondering whether or not it was necessary to go through all the trouble of incorporating. It’s going to be a very small group.

    If I don’t incorporate, does that mean I can’t receive donations from the public? Do I have to incorporate in order to call the organization a “non-profit?” Is the organization not recognized by the state if it is not incorporated? And will I have to personally pay taxes on donations if I don’t incorporate?

    Thanks in advance for your help.

  23. Julieann July 5, 2013 at 4:21 pm #

    I am trying to start a community theatre group as a nonprofit organization. I have read that you can pay a lawyer $500-$700 to start it, and I was wondering if anyone knew any good websites with online lawyers or something that I could use to start the organization

  24. Sierra July 6, 2013 at 6:39 am #

    I’ve always wanted to create a nonprofit organization in the future and I have some ideas, but I would like to hear from other people who may have better suggestions & who are aware of other situations that need more attention and help. I appreciate all answers. Thanks 🙂

  25. Emely July 6, 2013 at 12:01 pm #

    I worked for a nonprofit organization for a while. I asked the guy running it if he could personaly cosign on a car for me. He told me that a nonprofit organization couldn’t do that, or loan money. Is this true? If he had given me any money at all from that account, could he passibly take me to court to get it back, if it were deemed as a donation? He said that the organization could only make donations.

  26. Darwin July 9, 2013 at 12:05 pm #

    i need ideas about how i can get a nonprofit organization financed (besides fundraising). we have a group project of creating an organization about an after school program, but i want to know how we can get help with the finances and any informations about how people can donate to our program.

  27. Ernesto July 13, 2013 at 2:44 pm #

    A Charlotte nonprofit organization is looking for volunteers to help in the office.

  28. Loura July 17, 2013 at 4:55 am #

    I am working on setting up a nonprofit organization but I am trying to figure out how to set up to receive a salary.

  29. Shanda July 19, 2013 at 8:37 am #

    I’m still in high school but for my senior project my idea is to start working towards (if I can’t establish) a nonprofit organization for young women.

    What steps should I take to get started? Any ideas on other organizations I can get ideas from and volunteer service done with too?

  30. Jennefer July 20, 2013 at 4:27 am #

    When I was in the 8th grade I put together a small group of friends and we began a little group in school to help make the school a greener place. That was a success. But now, I want to make things more serious. Im only 14 but by the time Im 18 I would like to own a boutique for unprivileged female teens with low income families to shop at. There is this girl, Allyson Ahlstrom, who did an organization such as this one but she targets female teens in foster care. She owns her own boutique and has many donors who give her money. My goal is by the time Im 18, own a boutique and have all my volunteer friends with me working there. We will be giving every qualifying teen free clothing of her choice. I emailed dozens of companies and stuff but in order for me to fill out a grant for donation I need to be a 501(c)(3) nonprofit organization. WHATS THAT AND HOW CAN I BECOME ONE. Below I have a few questions

    1) Any famous companies who donate money to nonprofit organizations?

    2) Is it difficult to become a 501(c)(3) organization?

    3) Can you list me the steps of becoming a certified organization

    4) Easiest way to find and buy a boutique…with donation money.

  31. Wes July 21, 2013 at 7:54 am #

    Do you think people would continue to support nonprofit organizations and causes without the benefit of tax deductions for charitable contributions?

  32. Darrell July 23, 2013 at 4:05 am #

    I wanted to donate money to a nonprofit organization and wanting to find a list of nonprofit organizations to choose from. How do I do this?

  33. Mee July 24, 2013 at 10:09 pm #

    I’m still in high school but for my senior project my idea is to start working towards (if I can’t establish) a nonprofit organization for young women.

    What steps should I take to get started? Any ideas on other organizations I can get ideas from and volunteer service done with too?

  34. Sandy July 26, 2013 at 1:32 pm #

    If you are president of the United States and held a position in a nonprofit organization, you must, by law, disclose that position.

    Is this a law or is there no such thing?

  35. Kimberli July 27, 2013 at 6:50 pm #

    I work for a nonprofit organization. We are attempting to get it off the ground at this time. We are not a 501 (c) (3) nor have we talked to an attorney or anything. Can we legally take donations from private sources? Bank loan maybe? This is a learning experience for all involved. Looked up, but didn’t find to much good info. Any help would be appreciated. Thanks.

  36. Suellen July 28, 2013 at 12:26 am #

    I am in the beginning stages of creating a nonprofit organization. Any additional tips that you have would be greatly appreciated…Thank you 🙂

  37. Tabatha July 29, 2013 at 11:04 pm #

    Full Question: Why should you be interested in learning about the granting process for nonprofit organizations and social service organizations that support the community?

  38. Eveline July 29, 2013 at 11:04 pm #

    I am currently trying to figure out what I want to do in life in regards to a career. I graduated from a Bible college with a Church Leadership degree but currently do not see myself in a typical Church setting. I am contemplating starting up a nonprofit organization that I would be able to manage and start from the ground up. This would leave me the flexibility I crave without the confines of Church politics.

  39. Lemuel July 30, 2013 at 6:32 am #

    I am thinking of starting a nonprofit organization. I want to know if my daughter is eligible to take part in the program and receive the benefits with the other students. (Please only serious answers)
    Is this a conflict of interest?
    The organization will mentor and teach high school students how to get scholarships. I also plan to set up a scholarship fund that will be divided equally among the graduates. It is a four year program.

  40. Elanor July 30, 2013 at 5:49 pm #

    I am creating a nonprofit organization to help promote artists, performers, and writer. I am not sure what forms I need to fill out to be credited as a nonprofit organization or where I need to go to do so.

    Thanks for your help!

  41. Marcelino August 1, 2013 at 10:57 am #

    With more funds being block-granted at the state level and the legal limitations of 501(c) (3) nonprofits concerning lobbying, it might seem that lobbying for a nonprofit organization is impossible. Here are some actions an organization can take on both the state and national level to insure your agency’s efforts are being addressed.

  42. Rayford August 1, 2013 at 9:28 pm #

    I am interested in volunteering for nonprofit organizations. I don’t like the kind of work they tend to have volunteers do. However, I have noticed a lot of sites have out of date information or have things broken on their sites that I can easily fix. I’m assuming having someone who can update the site would be extremely useful for any organization. What are some of the best ways to volunteer to do this?

  43. Sabrina August 6, 2013 at 5:06 am #

    I’m writing an essay for a college writing class about ways that college students can help promote peace and I would like to know if there are any successful nonprofit organizations or charities that were created by college students?

  44. Sherlyn August 6, 2013 at 2:12 pm #

    Many nonprofit organizations depend on volunteers to provide services and keep the organization running. But it can be challenging to maintain a broad base of active volunteers. Providing a fun working environment, rewards and recognition will keep your volunteers returning year after year.

  45. Kit August 6, 2013 at 7:37 pm #

    I’m 15 and my dad i want to start a nonprofit organization so people in Africa can have clean water to drink..and don’t tell me it’s impossible for me to do because we have family friends who started their organization when one of them was 16..so, how do i start a nonprofit organization? Paper work? Who do i need to see? I’m serious about doing this. thanks.

  46. Elden August 7, 2013 at 1:32 am #

    Is there any nonprofit organizations in california around the san Fernando valley that help teen mothers get an apt an help out with the rent for about a year or two?

  47. Dian August 7, 2013 at 5:56 pm #

    I have never done an outline for a nonprofit organization before, and I am doing one for my Speech class,please help.

  48. Melony August 8, 2013 at 11:40 pm #

    I’m supposed to choose one for my speech class and write a speech about it. I was thinking about child abuse, but I don’t know. Can anyone give me a list of child abuse nonprofit organizations or a list of any interesting nonprofit organizations? please and thank you.

  49. Claire August 9, 2013 at 2:59 pm #

    Hi. I’m just a person trying to accept some donations from friends and family to put towards a brand new computer. Paypal seems to want me to be a nonprofit organization and present a bunch of documents to them to prove it. I’m not an organization and I need a service that lets people donate to me as a person (preferably through some account similar to paypal) or better yet, a guide on how to accept donations as an individual on paypal.

  50. Miquel August 9, 2013 at 2:59 pm #

    I am working with LifeNets.net, a non-profit organization. We have collected over 10,000 emails from people concerned about the genocide in Darfur, Sudan. We need to print a copy of each letter for each Senator in the U.S. Senate! We are planning to use 2 letters per page. I know Fedex Kinkos will charge us 3 cents a page. Is there anywhere I can find a cheaper price (if not free) for a nonprofit organization trying to print a lot of emails?

  51. Ted August 12, 2013 at 2:58 pm #

    What is the first step when applying for a nonprofit organization…name somethings that are consider a nonprofit organization.

    What are the pros/cons of having a 501c3 tax status
    Are there any limits on what can be called a non profit organization?

  52. Felipe August 17, 2013 at 5:20 am #

    Our Home and School association has a tax exempt ID, yet we are not a non-profit organization. How is that possible? How would we have obtained tax exemption? No one in the organization seems to know. What criteria could be used for obtaining a tax exempt ID? And this isn’t as important right now, but how do you go about becoming a nonprofit organization? Did you ever hear of a Home and School Association being such? Thanks.

  53. Byron August 18, 2013 at 10:02 am #

    I want to start my own nonprofit organization, but how? How can I make my organization big like the American Cancer Society? How old do I have to be to apply for a nonprofit organization? What about working outside of the country? Any information would be great thank you!

  54. Gene August 19, 2013 at 6:09 am #

    I’m going to college soon. What should I study/major in if I want to work in international nonprofit organization groups?

    I’m smart, especially in Math. I currently have a 95 average in all Honors courses. I’m also good with kids.
    I’m fluent in Spanish. I’m actually from South America. I’m studying French now, and will definitely consider studying it in college.

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