Do Nonprofits Need D&O Insurance?

Nonprofit organizations are unique entities where passion meets purpose, yet they often operate with scarce resources. Protecting the heart of the nonprofit’s mission is essential, and as a result, nonprofits tend to focus more on their activities than on managing risks.

Leaders of nonprofit organizations often underestimate the exposure of their executives and board members to lawsuits, which can threaten their personal assets. Consider a scenario where your nonprofit is faced with a lawsuit alleging financial mismanagement, wrongful termination, or even discrimination. Without D&O insurance, the personal assets of your board members are exposed to risk.

Don’t wait for a lawsuit to happen — if you have an advisory board or committee, you run the same risks as private and public companies. And the mistake to go without D&O insurance can be costly and difficult to recover from.

Unseen Risks: Who Can Sue Your Nonprofit and Cause Financial Loss?

Today, it is essential to partner with an experienced risk advisor specializing in nonprofit insurance who can offer a comprehensive 360-degree view of your organization's exposures, ensuring thorough protection against potential threats, such as:

• Regulatory Bodies Public: Authorities such as the US Department of Justice can investigate and press charges for misappropriation of grant funds.
• Donors: Can make a claim for misrepresentation of monetary donations.
• Clients and Customers: Can sue for misconduct and failure of your organization to deal with harmful behavior.
• Suppliers and Third Parties: Can allege damages resulting from being promised business that never materializes.
• Competitors: Can allege patent and trade secret infringement by a former employee who now works for your organization.
• Employees: Can file suit if they experience discrimination, harassment or wrongful termination.
• Creditors: Can allege fraudulent misrepresentation if the organization is unable to repay its debt obligations.

What is D&O insurance?

D&O (directors and officers) Insurance is a specialized policy designed to protect the personal assets of board members, officers, and leaders in the event of legal action against the organization. It covers defense costs and damages if they are named in lawsuits resulting from their decisions. Board members often view D&O insurance as essential before joining a Board of Directors, as it provides peace of mind knowing their personal assets are protected. This safety net is valued by directors and helps attract top talent to the board, ensuring board members won't face personal financial ruin while performing their duties.

What exactly does D&O Insurance cover?

It includes legal fees, settlements, and other costs associated with defending against lawsuits. This coverage ensures that your nonprofit can continue its mission without depleting resources intended for its cause.

Here are three compelling reasons why your nonprofit organization should have D&O Insurance:

1. Attracting and Retaining Talent: Board members and officers are more likely to join and stay with your organization if they know their personal assets are protected.
2. Financial Stability: D&O Insurance safeguards your nonprofit’s finances, ensuring that resources go where they’re needed most – towards your mission.
3. Legal Compliance: In an ever-evolving legal landscape, D&O Insurance helps your organization stay compliant and resilient in the face of potential legal challenges.

Protect your executives’ ability to lead — and their personal assets.

Protecting those who lead is not merely a choice, it’s a responsibility. Directors and Officers Insurance serves as your shield, allowing you to focus on what matters most – making a positive impact. Safeguard your mission, protect your leaders – ?because when your directors and officers are secure, your nonprofit can truly thrive.

How do I find the right insurance for my nonprofit organization?

You need a robust directors and officers insurance policy that will provide protection for both your company and your leaders as well as optimize your existing coverage. A trusted advisor experienced with nonprofit organizations will provide a tailored program with customized coverage that is designed to work with other liability insurance policies you have.

About the Author

Kevin Shannon is a seasoned commercial lines client executive at HUB Southwest in Albuquerque, New Mexico. With over eight years of experience in commercial lines insurance, particularly in the nonprofit sector, Kevin excels in helping businesses navigate the complexities of commercial insurance and fostering cultures of safety for their workforce and clients.

In addition to his professional achievements, Kevin has dedicated over 12 years to the New Mexico National Guard, serving as a Company Commander and Battalion Staff member. These roles allow him to bring a unique perspective on leadership and risk management to his clients.

Kevin finds joy in ensuring that the companies he collaborates with are well-prepared for life's uncertainties, contributing to the growth and protection of the New Mexico economy. He holds a BA in History from the University of New Mexico and has earned the CLCS designation as a Commercial Lines Coverage Specialist. Kevin also serves as a board member for the Carrie Tingley Hospital Foundation, further demonstrating his commitment to his community.

Contact:

Kevin Shannon

(505) 262-9404

[email protected]