As we mentioned in Part 1, D&O liability insurance has become a much more common item on the nonprofit agenda because more nonprofits are getting sued.

More and more lawsuits are being brought against directors and officers of nonprofits, including schools. Typical areas of dispute include hiring and firing decisions, employee supervision, asset application, and the interpretation of nonprofit charters.

One of the biggest misconceptions is that general liability insurance will protect the directors and officers. However, a public liability policy usually only covers an entity for bodily injury or property damage for which they are responsible. Losses arising out of suits alleging discrimination and wrongful termination are often excluded.

Directors and officers liability insurance protects the directors and officers of nonprofit organizations from damages and defense costs for “wrongful acts.” Many people will not even serve on boards without the entity providing the proper insurance to protect them personally.

In addition, premiums for this policy have decreased significantly, especially for charter schools, while still providing the much-needed coverage form.

Critical features of D&O liability policies may include:

• Broad definition of insured: D&O liability policies cover all directors, officers, employees, staff, volunteers, and committee members. Coverage limits typical for nonprofit organizations range depending on the organization’s asset size. They generally range from $1,000,000 to as high as $25,000,000.
• Full entity coverage: Most policies now cover claims against the organization, even if no directors or officers are named in the lawsuit.
• Employment practices coverage: Directors’ and Officers’ Liability policies help protect all insured persons against damages from claims for wrongful termination, sexual harassment, discrimination, and unfair hiring/firing practices.
• Duty to defend: Current policies are committed to fair claims resolution.
• Defense Expenses outside the limits of liability: Most policies now provide for total defense expenses incurred, and these expenses will not diminish the overall limitation of liability under the policy.
• Prior acts coverage: Policies now have no “retro dates” that would limit the scope for the last wrongful acts.
• Zero deductibles available: Almost all nonprofit D&O liability policies provide for no deductible for claims to directors and officers.

It should be noted that these policies are not standard in form, and consequently, coverage does vary from one carrier to the next. The market for D&O liability coverage for nonprofits is quite competitive. If you want to learn more about providing directors and officers insurance for your school, please let us know.