Demystifying D&O for Nonprofits

Posted on: January 19, 2017 by Care Providers Insurance

A nonprofit organization’s officers and board of directors are responsible for the governance of a nonprofit. Because a nonprofit does not have shareholders, all responsibilities of ownership fall on its board members.

While the board of directors acts as a single entity, each individual member has a primary legal duty to make sound decisions regarding the management of the nonprofit organization. If one of these entities is found guilty of misconduct, both the organization’s assets and the personal assets of each member can be at stake. Therefore, securing directors and officers liability is critical for those in the nonprofit industry.

Below are answers to common questions asked by agents regarding D&O insurance

1. What does D&O Cover?

Directors and officers liability covers three basic entities: the individual officers and members of a board, the board as an entity, and the organization itself. The coverage protects these entities when lawsuits arise in response to disputes, such as hiring and firing decisions, asset management, and any other decision or action made by a nonprofit.

2. Do My Nonprofit Clients Need D&O Coverage?

Yes. Directors and officers liability insurance is not included in the general liability coverage that most nonprofits purchase. Lawsuits against directors and officers of nonprofit boards are increasing at an alarming rate. Without this insurance, members of these boards could have their personal assets categorized as recoverables during the threat of litigation. In addition, if the board member sits on several different boards, their assets are considered recoverables for each board on which they sit.

While some states offer immunities and limit liability for nonprofit board members, these rulings have limitations and may not include certain violations.

3. What does the coverage entail?

There are three sections to D&O coverage.

  • Section A: This section provides protection to individual officers and board members when the organization is unable to indemnify them. This is often referred to as personal protection.
  • Section B: This section reimburses the organization for its indemnification obligations to the board directors and officers as a whole, not individually as in section A.
  • Section C: The last section in a typical policy insures there is coverage for the entity or organization when it is sued along with the directors and officers.

According to, the D&O liability market is underpenetrated with only 30% of nonprofit organizations purchasing this crucial coverage. Overlooking this coverage leaves both board members and the nonprofits they represent in a vulnerable position. Therefore, it is essential that your clients invest in this protection.

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