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by Brent Allen, Allen Financial Insurance Group

Directors and Officers liability insurance protects directors and officers of non-profit companies from damages resulting from alleged or actual wrongful acts they may have committed in their positions. The policy provides protection in the event of any actual or alleged error, misstatement, omission or breach of duty.  In addition, some policies extend the same coverage to employees. In many cases, anyone you name to your board of directors will ask that you take out this type of policy before he or she assumes the board member position.

Non-profit organizations have an obligation to remain true to their founding principles. A non-profit that decided to expand outside of its original mission statement, without seeking approval from the board and membership, could cause the non-profit to be held accountable if it is determined that funds were misused. This doesn’t mean that the non-profit leaders acted illegally, only that money was spent for a use that was not expressly approved.  A state attorney general sued a large charitable foundation, alleging the trustees were excessively compensated and devoted insufficient time and resources to support the foundation’s intended purpose. The suit was settled for over $5 million.

While Directors and Officers coverage protects management, who control the money and direct operations for your non-profit; the Errors and Omissions coverage deals with the actual services your organization provides. Typically, this would cover you if someone sues your non-profit for failure to provide a service rendered.  For example, a non-profit ran a suicide hot line and an operator talked to a teen who later harmed himself.  The parent sued the non-profit for professional negligence.  Even a meritless claim will be covered by your policy so that you don’t have to pay out of pocket for attorney’s fees and other court costs

Another example involved animal owner who sued an organization that registers thoroughbreds for restraint of trade. The thoroughbred registry rejected the animal due to excessive markings on its coat that made it ineligible for registry according to applicable rules.  After a two-week jury trial, defense and settlement costs exceeded $1 million.

Both directors and officers coverage and errors and omissions coverage provide your organization with the protection it needs to stay in business and prevent the board members from assuming personal fiduciary responsibility for mistakes. Whether your non-profit is brand new, or it has been around for centuries, these two types of policies are critical for your continued success.