D&O insurance is the common name for Director and Officers insurance coverage. This type of insurance coverage helps to cover settlements, legal expenses and any wrong allegations against a nonprofit organization. It protects directors and Officers of nonprofits against any violation of duty. According to Randon Morris, it will be wrong to believe that D&O insurance coverage is only for big nonprofit organizations. The reason is that directors and officers of nonprofits have the possibility of being exposed to personal liability irrespective of the organization’s size or type.
In most cases, directors and officers of nonprofit organizations don’t have enough experience and at times they don’t have a vast knowledge of their responsibilities and duties regarding the organization they serve. Directors and officers of nonprofit organizations need to know that the Federal Volunteer Protection Act doesn’t cover all their actions. This means there is a need for nonprofits to protect their directors and officers with D&O insurance no matter their size or type, says Randon Morris.
The Benefits of D&O Insurance Coverage for Nonprofits
1. They help in Making Decisions
Most board of directors for a non-profit organization may have the zeal and passion for their work but most of them lack the knowledge and experience. The responsibilities and duties of a board director might not be known to them and this will eventually lead to them operating a less than profit business organization. For this reason, making a sound decision might be lacking in the organization and this leads to loopholes and creates a greater risk for the company, says Randon Morris. Decisions like employee salaries, how funds are spent, goals and strategies to be met are made by the board of directors and this decision needs to be protected by insurance. With D&O insurance coverage, there will be liability protection. What they do is make lawsuits payment based on the board of directors’ decisions.
2. Attracts More Potential Investors
Lots of organizations are seeking external funding for expansion and growth. For investors to invest in a non-profit organization, they have to be sure of the insurance coverage of the organization. This means they will request a seat on the board of directors. And most investors will only feel safe with companies that have a strong D&O insurance policy.
3. Protection from Bankruptcy
Though declaring bankruptcy saves the company stress and gives litigation protection, it puts the directors and leadership at risk. Whenever a company declares bankruptcy, people will blame them for their incompetence and ask for compensation or pay the company’s debt. This may also lead to directors being sued by an individual or collectively. It will place the directors in a tight corner or a rough spot because the company may not be able to defend them. With a good D&O insurance policy, they protect the directors and executives. And this saves them from lawsuits and other punishments. This is why D&O insurance coverage for non-profit organizations is important.
4. Cyber Scams Coverage
The rate at which cyber breaches are increasing these days is very alarming. Once there is a cyber breach, it costs the organization greatly.
It cost about $9million per breach in the United States. It’s even complicated to know the cause of the breach or the main purpose of doing it.
The expectation of a customer or an investor is that the non-profit organization should have adequate cybersecurity.
Directors and executives will be blamed, if they find out nothing was done to reduce cyber risk and they will be held responsible. With good D&O insurance coverage for a nonprofit organization, they will be covered.
5. Draws Better Talent
Every organization is searching for talented leaders that can help them lead their companies or businesses. As a result of this, the need for talented leaders is highly competitive. Top-level officers, as well as directors, will not want to put their assets at risk which makes certain things into consideration before joining an organization. As nonprofits that want to work with top-level and talented board members, there is a need to invest in D&O insurance coverage for effective leadership, says Randon Morris. With D&O insurance coverage in a nonprofit organization, the directors and officers don’t have to worry about the risk associated with their role. Rather they can focus more on making decisions that are best for your organization or company.
The Coverage of D&O Insurance
1. Failure to carry out Official Responsibilities or Duties
Whenever there are any mistakes in a company or organisation the directors and officers are held responsible. The D&O policy can help pay for the cost of hiring a lawyer and other expenses when a board member is sued for not performing official duties or complying with legal requirements.
2. Mismanaged Funds
Board members may be sued if they are accused of making a poor investment judgment or squandering nonprofits funds. Even if the lawsuit is without merit, legal bills and court costs could deplete your company’s finances dramatically.
3. Failure to Adhere to Regulatory Standards
The board of directors of charitable organizations or animal shelters may be held responsible if they fail to adhere to regulatory standards. D&O insurance will take care of all legal expenses.
Nonprofits should consider investing in D&O insurance coverage to help protect their directors and officers because, without it, your leadership team might be at risk. According to Randon Morris, D&O insurance will be a great means to mitigate the risk and give your board of directors’ peace of mind and be able to make proper decisions.