Joining a nonprofit board is a significant honor and a great way to serve a community you care about. Whether it's a school, museum, tenant association, or religious organization, board service can be incredibly fulfilling. However, before you accept the role, it's important to carefully consider potential liability issues.
We live in a time where lawsuits are all too common. Nonprofit boards, like their for-profit counterparts, can face legal challenges related to matters such as sexual harassment, employment disputes, financial mismanagement, and more. Even governmental boards, like school boards or park commissions, aren't immune from personal liability concerns for their actions.
That being said, you shouldn’t let this deter you from taking a board position. What you do need is the right insurance protection to safeguard you from potential lawsuits or settlements. Unfortunately, most homeowner or umbrella insurance policies likely won’t cover you in these situations.
Here are four essential steps to help ensure you're protected while serving on a board:
1. Request a Copy of the Organization's Directors and Officers (D&O) Liability Policy
Simply knowing the organization has insurance isn’t enough. It's crucial to get a copy of the actual D&O liability policy and have it reviewed by your insurance broker. This ensures you fully understand the coverage and that it will provide adequate protection in case of a lawsuit.
2. Have a Professional Assess the Policy's Adequacy
Work with an experienced insurance broker to evaluate the policy and determine whether the coverage is sufficient. Some important considerations include:
- Is the insurer financially stable with a proven track record of paying claims in the D&O space?
- Are the policy limits appropriate for the size and risk profile of the organization? For example, a large urban nonprofit likely needs more coverage than a small rural group.
- Is a portion of the coverage specifically allocated for directors and officers? A single-limit policy could mean that a significant settlement exhausts the coverage, leaving board members personally exposed.
- Does the policy contain any restrictive or problematic terms?
3. Address Policy Concerns with the Organization
If you discover that the D&O policy doesn't provide adequate protection, bring this up with the organization's leadership. They may welcome your input and be open to updating the policy to better protect board members. Even if insurance isn’t at the top of their priorities, most organizations don’t want to lose valuable board candidates due to insufficient coverage.
4. Consider Purchasing Additional Coverage if Necessary
If the organization is unable or unwilling to improve its insurance coverage, and you still want to serve, you may need to purchase additional liability insurance yourself. Don't assume your personal insurance will protect you, even if you have a high-limit umbrella policy. Umbrella insurance is designed to cover personal liability issues, like accidents at your home, but typically won't extend to claims related to your role on a nonprofit board.
Serving on a nonprofit board can be a rewarding experience, but it’s crucial to ensure you're properly protected. Every board is different, and their insurance policies can vary widely in terms of coverage and risk. Before committing to a board position, we recommend having a thorough review of the organization’s insurance policy by a professional. If you've been invited to serve on a board, we can help make sure you can do so with peace of mind, knowing you’re well-protected against potential liabilities.