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Why directors & officers insurance is essential for any nonprofit

Why directors & officers insurance is essential for any nonprofit

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Directors and Officers Insurance — also known as D&O Insurance — protects your organization and its board members from costs caused by legal liabilities. In the case of a lawsuit, not having D&O insurance in place could tie up your whole organization and impact those who need your services. It can also put your organization's (and its board members') assets in jeopardy. 

This article discusses what D&O Insurance covers and why it’s essential for nonprofits.

What situations does Directors and Officers Insurance cover?

At your nonprofit's core is its board directors and officers. These individuals lead the direction of the organization's mission and policies and have a legal responsibility to perform their duties in good faith and free of conflict of interest. Board members may decide on employee policies, how budgets are spent, and what assets are purchased. In the process, board members — even if they're volunteering — open themselves to unique liabilities. 

Generally, D&O Insurance protects against risks not covered by a general liability policy. Actions or consequences of board decisions or omissions often fall into this category. D&O Insurance covers situations such as: 

  • Improper employment or human resource practices such as wrongful dismissal, discrimination, harassment, or unsafe practices
  • A belief by donors or creditors that funds are being mismanaged
  • Defamation
  • Breach of fiduciary duties or issues related to a conflict of interest. This could be where a nonprofit purchases products or services from a business owned by a board member

What does D&O Insurance do for nonprofits?

Peace of Mind: D&O Insurance would pay for legal fees or damage awards related to a lawsuit. Even if a claim is unfounded, the costs associated with legal disputes remain. D&O Insurance, as a result, provides peace of mind for nonprofits so that they can focus on delivering their services. 

Attract and retain talent: Having qualified professionals on your nonprofit’s board can ensure your organization's success. It's helpful to have board members with business or legal expertise for day-to-day operational issues. D&O Insurance can help attract and retain such talent. Directors and officers feel more confident about their work on a nonprofit board when they understand they're protected in case of liability and legal disputes.

Mitigate Risks: D&O insurance may be even more critical for nonprofits than for for-profit companies. Sometimes, a nonprofit board is composed of dedicated volunteers who have a less formal understanding of employment laws or financial accounting. In this case, D&O Insurance can ensure that mistakes won't result in your organization's bankruptcy. 

Directors and officers of your organization's board may take actions that result in a lawsuit against them or the nonprofit. D&O Insurance is critical to protecting your board members and your nonprofit from legal liabilities not covered by general liability insurance. This coverage also helps recruit and retain talent for your organization and provides peace of mind for all stakeholders so that your organization can focus on delivering its services. 

APOLLO is Canada’s leading online insurance company. Our proprietary platform, the APOLLO Exchange, allows insurance agents and their customers to purchase their insurance policy immediately, from anywhere, on any device, 24/7. We provide competitive insurance rates (including D&O Insurance) for charities and nonprofits - check us out here!

Guest contributions represent the personal opinions and insights of the authors and may not reflect the views or opinions of Imagine Canada.

Emily Gracia has worked at numerous technology companies as part of their digital marketing and content creation teams, and uses her skills to help partners strategically grow and reach their networks. As a part of the Partnerships team at APOLLO, she is focused on helping to create value through marketing and cultivating digital content initiatives. She studied Commerce at the University of Victoria.

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