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What does non-profit D&O cover?
Non-profit D&O insurance covers legal defense costs for non-profit board members and protects their personal assets and the organization’s mission. We actually see more claims against non-profits than against private companies, in part because non-profit boards are often staffed by volunteers and typically lack traditional management experience. Non-profit D&O coverage applies to all non-profits, including professional organizations, advocacy societies and homeowner/condo associations. Without coverage, these board members are putting their personal assets at risk as well as organization’s assets at risk.
So individuals can have a claim leveled against their personal assets?
Yes. Board members can be named personally in a lawsuit because of the board’s inability to fulfill the organization’s mission, or can be held liable for the directions and management decisions they make. It is essential for a non-profit to abide by its organization’s mission in order to retain its tax exempt status, so the board’s duties should only be to advance their organization’s purpose. For example, if a condo association collected funds to improve sidewalk conditions and never contracted the work, a group of association members could file a class action lawsuit against an association board member to ensure the sidewalks are repaired.
How does a carrier assess the risk, and what are the ratable factors for a non-profit organization in need of D&O
Although there are many ratable factors, there are two key pieces of information underwriters will use to assess the risk, which agents should be aware of. An organization’s financial statements are used to gauge the organization’s financial condition and how well the board manages their finances as well as the amount of assets—the larger the assets the larger the exposure. In addition, agents should study the industry in which the non-profit is operating in to recognize the risks associated with different industries and to review the organization’s mission. For example, a charitable group with a mission to feed the poor has different risks than a community development organization seeking government approvals to build a community garden. The first being a low risk exposure which is easier to insure, and the latter being more difficult due to the governmental involvement and the number of people the organization’s mission will impact.