Each insurance company writes its own specialized Directors’ & Officers’ (D&O) policy. Determining what coverage is provided can be a very difficult process. A few of the most desirable provisions of coverage for nonprofits include:

• A broad definition of insured extends coverage to any person who was, is or becomes a director, trustee, officer employee, committee member or volunteer of the nonprofit as well as the nonprofit organization itself. To determine whether a particular D&O policy contains the broader coverage, simply look at the definition of “insured”. If the organization and its employees are not named insured, the policy offers narrow coverage and the organization and/or its managers are uninsured.

• A requirement that the carrier will advance the costs of defense is essential to maintaining your cash flow. An alternative, reimbursement language, requires the nonprofit to pay all costs and attorney fees out-of-pocket and wait for repayment by the insurer. Since litigation covered under D&O policies can be expensive and lengthy, reimbursement-style policies can severely stretch a nonprofit’s resources.

• A broadly written policy covering employment practices should provide a defense for claims alleging a wide range of wrongful employment actions. Some policies accomplish this by extending coverage to employment-related claims generally, while others list the specific causes of action (such as wrongful termination) that are covered. If the policy includes a specific list, determine if all relevant exposures are included. Coverage should apply to cases arising under both state and federal laws.

• If possible, the insurer’s interpretation of certain definitions should be determined. If the insurer defines sexual harassment as sexual abuse, there may be no coverage under that D&O policy if it contains a sexual abuse exclusion.

Most of the lawsuits filed against nonprofit directors and officers involve some form of employment practices liability. Look for the above provisions in the policy to adequately protect your nonprofit.

Contact Nonprofit Resources, the nonprofit insurance expert, for additional information about D&O policies.