November 4, 2004 | Read Time: 2 minutes
Q. I work for an educational foundation and we are researching the need to insure our executive director and board members. What is the industry standard for an all-volunteer board?
A. You’re probably referring to what’s known as directors and officers liability insurance, commonly referred to as D&O insurance. Eighty-nine percent of all nonprofit groups provide liability insurance for their trustees, according to BoardSource, a Washington organization that assists nonprofit boards.
It’s an important protection for people who are serving on your board, especially if they are doing so without compensation. Such insurance generally protects a board member’s personal finances, if he or she is implicated in a lawsuit while acting on behalf of the organization, says DeAndre Salter, president of Professional Risk Solutions, an insurance company in Somerset, N.J., that specializes in covering executives.
The good news is that the premium for such coverage is relatively inexpensive, says Sean Coady, principal of Capstone Insurance, in Boston, who notes that a typical annual premium for $1-million in coverage would be $1,000. “These policies will often include some combination of D&O and employment-practices liability coverage,” he says. “EPLI provides liability protection for claims relating to the employment context, such as failure to hire or promote, wrongful termination, sexual harassment, or other forms of employment discrimination.” Employment claims are very common causes of lawsuits against board members, say Mr. Coady.
Some people will refuse to sit on your board if you do not offer this kind of protection. “I can’t imagine any nonprofit functioning without [D&O] insurance,” says Sara Kirkland, executive vice president for administration and planning at Susquehanna University, and a board member of the Evangelical Community Hospital, in Lewisburg, Pa. ” I sure wouldn’t work or volunteer for one that didn’t provide generous coverage.”
You’ll need to talk with your insurance professional or risk manager about exactly how much coverage is right for your foundation, says Mr. Salter. The amount depends on how likely your foundation is to be sued, which is determined by the sort of work that you do. If cost is a concern, you also might want to see whether any of your board members also belong to for-profit boards, suggests Mr. Coady. “The D&O coverage for that company may in many instances cover them for the nonprofit work,” he says. The trustees may also have personal policies that provide sufficient coverage, he says.
Learn more about D&O insurance by checking out the Nonprofit Risk Management Center;http://www.nonprofitrisk.org. Also don’t miss “Directors & Officers: Key Facts About Insurance and Legal Liability,” a free booklet that is available for download at the Alliance of Nonprofits for Insurance Web site.
