Many nonprofit organizations are often unaware or uncertain as to whether they need directors and officers (D&O) coverage. Whenever a person becomes a board member of a nonprofit organization, they assume a certain level of responsibility for the organization and may therefore be exposed to claims for not running and managing it properly.
Unlike general liability insurance (which any organization that has a physical plant absolutely cannot afford to be without), whether or not an organization needs directors and officers insurance in Florida depends on what the likelihood is that one of the board members will end up being the target of such a claim.
How does D&O insurance work?
Directors and officers liability insurance protects past, present and future directors and officers of for-profit, or nonprofit companies, from damages resulting from alleged or actual wrongful acts they may have committed while in their positions. This policy provides protection in the event of claims of any of the following:
- Actual or alleged error
- Misleading statement, or
- Breach of duty
In addition, most policies cover any criminal, administrative, civil, and regulatory proceedings, while few, if any,extend the same coverage to employees. D&O liability insurance is needed when a board of directors is assembled because of the exposures associated with this line of duty.
Who generally purchases D&O insurance?
Any publicly traded company with a corporate board or advisory committee should consider carrying some form of D&O coverage. The benefits, as well the protection offered by D&O could greatly offset any charges brought against the company that results in a huge settlement amount.
Claims from employees, clients and even stockholders may be made against any company at any time, and since officers and/or directors will often be held responsible for acts of the company, most people acting in these positions will want to be covered, rather than risk their own personal assets. Officers include the executive director and possibly a few key employees. However, many policies don’t include staff and volunteers or the entity itself.
If a claim is filed against a board member, in many cases it will also be filed against the nonprofit. Furthermore, many nonprofits have volunteers other than board members serving on their committees. Investors and members of the board of directors will not risk their personal assets to serve as a corporate director or officer without Florida directors and officers coverage already in place.