Directors and Officers (D&O) Liability Insurance
This insurance provides coverage for “intentional” actions taken by an organization’s board of directors or managers that someone else thinks are wrong. The policy will cover individual directors and officers, as well as any other individuals designated in the contract. It is not possible to purchase insurance for illegal acts. Deliberate dishonest acts by the directors and officers are excluded.
Most states, including Colorado, have a statute that affords minimal protection to volunteers serving nonprofit organizations. The intent of these statutes is to enable volunteers to avoid personal liability for simple negligence when they are working under the direction of a nonprofit. Most statutes include the exclusion of protection for any:
1. willful acts on the part of a volunteer
2. claims involving the use of an automobile
3. claims alleging violation of civil rights laws
4. volunteer serving a nonprofit that does not have liability insurance
No immunity is provided for the nonprofit organization, only the individual volunteers. None of the state laws specifically prohibit the filing or suits against volunteers or nonprofit organizations. Typically, the most expensive part of any lawsuit is determining the facts.
A broadly written policy covering employment practices should include a defense for claims alleging a wide range of wrongful employment actions. If the policy includes a specific list of causes of action, the nonprofit should determine if all relevant exposures are included. There should be coverage for cases arising under both state and federal laws; those specific to employment and those, such as the Americans with Disabilities Act (ADA), applicable in many contexts.
Most policies are written on a claims-made basis. The policy will provide coverage to you for claims made during the term of your policy, as long as they are reported during the term of that policy. If you terminate your coverage for any reason, you are not covered if suit is later brought for something done during the term of the policy.
Various limits of liability are available. A typical limit would be $1 Million or $2 Million. Before selecting a limit, the nonprofit should determine if the expense of defending a claim may be included in that limit. Policy language determines if the carrier provides the defense or if the nonprofit must provide the defense and seek reimbursement. Reimbursement language requires the nonprofit to pay all costs out-of-pocket and wait for reimbursement. Most policies have a deductible or retention limit.
Contact Nonprofit Resources (click here) for more information about policies available to your organization.
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