How D&O Liability Insurance Can Save Your Foundation
Leaders of large organizations aren’t the only ones in need of a little legal extra protection. Yet, when thinking about who might benefit from Directors’ and Officers’ liability insurance (D&O) you might think that such a precautionary measure really only makes sense for the big guys. You’d be wrong. The directors and officers of nonprofit foundations are finding themselves exposed to more personal liabilities than ever before, making D&O insurance a solid decision regardless of an organization’s size or entity status.
More Risk, Less Protection?
Oftentimes, the inner-workings of your nonprofit organization may be more complex, yet less efficient, than your for-profit counterpart. As a result, there is a lot of room for error. As a member of your nonprofit’s board, what you’re basically doing is taking on more risk without ensuring that the proper protections are in place to protect you if something were to go wrong. Moreover, even though your organizational structures, policies and procedures may be lacking, the legal standards that are put on nonprofit directors and offices tend to be comparable (if not higher) than those in the for-profit space. For these reasons, it’s truly worrisome to know that so many nonprofit officers are volunteering their time and energy to drive organizational growth while failing to take steps to ensure that they are legally protected.
Read Also: Nonprofits Consider For-Profit Advantages
Liability suits filed against your nonprofit can be difficult, time-consuming and costly to defend. D&O insurance provides sound protection against most claims that allege mismanagement at the organization level. Keep reading to discover four additional reasons to consider purchasing D&O insurance for your board.
- Foundations are regularly named in suits because of the belief that they have acquired a significant amount of money and, thus, can afford it. Some foundations will purchase D&O insurance to avoid being targeted.
- Some organizations will forbid their professionals from serving on a nonprofit’s board of directors unless the organization has purchased D&O insurance.
- As a nonprofit, your assets are only to be used for charitable reasons – not for litigation. If your organization is called to court, it’s possible that, without D&O insurance, you will have no immediate way to pay the court costs.
- D&O coverage will assist your organization if it were to find itself in suit brought about from the IRS or any state attorney general.
Foundations fuel some of some of the best causes in the world. As a result, they are oftentimes the most sophisticated and asset-rich organizations in the nonprofit sector. It’s no wonder these organizations are feeling the heat from multiple sources. Fortunately, D&O insurance can help reduce the heat a little further. Email Rea & Associates to learn more about your risks and how D&O insurance could provide you with the protection you, and your board, needs to operate effectively for years to come.
By Maribeth Wright, CPA (Retired)
Check out these articles for additional insight to help manage your nonprofit:
Care, Compliance, Loyalty & Financial Accountability