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Protecting Yourself as a Board Member

So you’ve been tapped to serve on the board of directors for a prestigious local nonprofit. It’s good for the nonprofit, good for your career and is an all-around fit. Where do you sign?

Not so fast. What kind of insurance do you have to protect you if you decide to take on such a public role?

As a director, you are personally liable if you are sued. One of the responsibilities of directorship is you have to be properly insured. Sometimes the nonprofit covers it, but not always.

There are many responsibilities when it comes to serving on a nonprofit board, and actions against the nonprofit do extend to the board of directors. So if you elect to serve, your home, your accounts and all of your assets could be on the line without proper coverage.

The best course of action is to clarify the insurance offerings from the nonprofit before making any commitment. Most often, insurance is not offered directly, but attorney’s fees – which can end up being the bulk of expenses – are reimbursed. Ask the board what their policy is regarding both. Will you be out substantial amounts of cash that attorneys demand up front? Remember, depending on the nonprofit, most are not awash in cash and could have a hard time reimbursing you.

Directors and officers liability insurance, which is sometimes referred to as D&O, covers losses from actions brought against the agency. The coverage can extend to criminal and regulatory lawsuits too. It’s usually the case in criminal investigations that boards are sued civilly at the same time.

People can sue a nonprofit for a variety of reasons. They can claim the board is mixing personal and business assets, or that a director or board member has a conflict of interest he or she did not disclose.
Regardless of the nature of the claim, it is wise to determine who will purchase the coverage long before getting comfortable in a director’s chair.

– Steve Felker, president of GCG Risk Management Consultants LLC

Contact GCG for more information