Nonprofit Executive Liability Insurance

Directors and Officers Liability Insurance (“D&O”) is intended to protect the assets of a nonprofit organization and the individual directors, officers and employees from claim and litigation expenses. All directors, officers and employees have certain management duties and responsibilities they owe to the organization. D&O coverage is designed to address allegations of “wrongful acts” that allege breach of the legal duties of care, obedience and loyalty to the organization. Claims such as failing to protect and manage the financial affairs of the organization or wrongful employment practices may arise under a D&O policy. While not all management liability claims may be covered under a D&O insurance policy, it is one of the best ways to protect the organization from defense expenses, settlements and verdicts against the organization and individuals that serve it.

Your organization's commercial general liability (CGL) policy does not cover "wrongful acts," that may occur as a result of management decisions and activities of the organization. In all likelihood, the CGL coverage is limited to bodily injury and property damage only.

Unfortunately, the answer is Yes. In a recent report by Watson Wyatt Company, 36% of the 726 associations and other nonprofit organizations surveyed had a D&O liability claim in the past ten years - more than double the percentage that had had a claim in the preceding ten years. The greatest increase of claims activity is among smaller organizations. Significantly, the survey indicated that the average defense cost for a D&O claim is $114,000. What would an unexpected and uncovered expense of $114,000 do to your organization, and your individual directors, if you could not indemnify them?

Federal and state laws do not bar all claims against a nonprofit and its employees and volunteers. First, it is important to remember that immunity laws are a defense to a lawsuit. The organization and its employees and volunteers likely will still incur defense expenses in asserting the immunity. The Federal Volunteer Protection Act of 1997 may not shield the organization itself, or staff. Also, it does not preclude claims against a volunteer for allegations of violations of federal civil rights laws (the most common source of claims), "gross negligence," or automobile-related liability. State "immunity" statutes vary, and may protect the nonprofit only if D&O insurance has been purchased. Your organization can be sued for a “wrongful act” causing injury by anyone with any interest in the organization’s activities -- employees, members, constituents, donors, board members, vendors, governmental authorities and others. Without nonprofit D&O coverage, you must pay for your own defense, even if you are proven blameless.

Yes. A representative of Payne Financial Services can be scheduled to make a presentation to your board. Additionally, MNA periodically offers educational sessions on governance, organizational liability and insurance.  The Nonprofit Risk Management Center also has excellent web-based resources for learning more about potential D&O liabilities and risk management.

The D&O program endorsed by MNA and offered through Payne Financial is available only to 501(c)(3) members of the Montana Nonprofit Association. MNA has authorized Payne Financial to be the exclusive broker for this program. Other brokers may be able to offer a nonprofit D&O policy but it may not be identical to MNA’s program. If your broker indicates that he or she has a better product, we recommend that you comparison-shop. You need not be an MNA member to receive a quote through Payne Financial. You do need to be a member to purchase the coverage, however.

While we are confident of the quality of the MNA D&O Program, we encourage everyone to shop wisely and compare policies and prices to ensure that your organization has the best coverage at the best price to meet your needs. There could be many reasons for price variables in policies including different deductibles, different coverage, and fewer or more exclusions to coverage. Insurance carriers also have varying reputations for the quality of policy and claims service. Check with your insurance agent. If your existing policy has the same broad coverage and quality reputation at a lower premium than the MNA program, stay with your carrier and enjoy the savings. To assist, we have an abbreviated quote request form that can be downloaded to receive a quick and free MNA D&O Program quotation.