Many non-profit directors question whether they need directors & officers insurance. Directors may believe they cannot be sued directly, since a corporation is a legal entity, or they may think legal issues are unlikely since a non-profit does not have shareholders. In reality, though, non-profit directors can be held liable for various issues, from employment practices to mismanagement of funds, which makes having a strong Directors Corporate Liability policy essential.
Why Coverage Is Crucial
Several factors may actually put non-profit directors at an even greater liability risk than for-profit directors. These include:
- The directors of non-profits often have fewer personal assets, since they may serve for free or for small salaries. Any claim against a non-profit director’s personal assets could be highly impactful.
- Volunteers, rather than experienced business people, run many non-profits. This means many directors may have limited knowledge of their legal responsibilities.
- Some non-profit directors have other jobs and limited time to focus on the organization. This raises the risk that they will make mistakes.
- Non-profit organizations are run with less oversight or regulatory requirements than for-profit organizations. This leaves more room for directors to go astray.
All of these factors can increase the likelihood of non-profit directors facing liability claims.
Choosing the Right Protection
Insurance coverage is far from optional for non-profit directors. Directors should look for an insurance provider that offers several forms of D&O insurance, including Directors Corporate Liability policies designed for the directors of non-profits. This is the most effective way for non-profit directors to offset the surprising and significant liability risk they may face.