Avoid Personal
Liability
It's an age of personal responsibility and legal liability can wreak
financial ruin for your organization's officers and board members.
|
The Allocation Complication
One of the most
misunderstood aspects of directors' and officers' insurance
is allocation: What is covered and what isn't? Who
is insured and who isn't? How to divide up responsibility
for defense costs and settlement between the directors and
officers and the organization itself.
Allocation is required when a policy doesn't provide
"entity" coverage to the organization and a lawsuit is
brought against directors and officers and the
organization. In that situation, a policy would cover the
defense and settlement expenses of the individuals but not
the organization. |
Directors and officers of
non-profits can be personally responsible for managing the
affairs of the organizations. (This can also be true for directors
and officers of for-profit companies.)
Being an effective board member takes time, effort and diligence.
Neglect or a disgruntled party can result in your directors being
held individually liable for their actions in court.
Suppose you run a mentoring program and a parent sues because one of
the mentors has a history of drug abuse. Your directors could be
individually liable for not performing strict background checks on
volunteers.
Here's a list of just some of the claims that have been filed
against non-profits and their officers and directors:
Employee
discrimination.
Wrongful
termination.
Sexual
harassment.
Hiring
decisions.
Promotions
and compensation.
Activities
in which volunteers are injured.
Donors
who feel their contributions have been misused or mismanaged.
The risks are particularly keen for not-for-profit
organizations because many of them aren't wealthy enough to mount a
legal defense and pay settlements, which can run $1 million or
more. These sums can devastate your organization and the personal
finances of its directors and officers.
To provide protection, buy "directors' and officers' insurance" or
update your current coverage. This insurance can reimburse the
organization for indemnification expenses; make payments to
directors who aren't reimbursed for legal expenses; and - with
careful planning - cover employment cases, which make up 50 percent
of all claims against boards.
