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(541) 687-4799

Important Legal Exposures for Nonprofit Board Members

  • By:
  • Alliance Insurance Group
  • |
  • Dec. 22nd, 2015

Serving on the board of a nonprofit organization can be a very rewarding experience, and a great way to provide value and service to your community. However, serving on a non-profit board also comes with some potentially serious legal exposures that could put your livelihood and personal assets at risk.

Many non-profit board members mistakenly feel that they don't have significant personal liability exposure when it comes to their organization. Nevertheless, we live in a litigious society where the possibility is always present, which is why we advise taking the proper measures to protect yourself and your organization.

Directors and officers (D & O) of non-profit organizations have exposure to a broad range of potential lawsuits, including wrongful termination, harassment, discrimination, negligence, and financial mismanagement. Claims directed at non-profit board members can be extremely costly to the organization. For example in misconduct cases, directors and officers run the risk of being held liable and having their own personal assets at stake. This illustrates why directors and officersinsurance, or D & O insurance, is such a critical component to any non-profit board's risk management strategy. It provides directors and officers essential protection against lawsuits, defense costs, and even potential settlement payments.

What is D & O insurance, specifically?

D&O insuranceserves to indemnify the directors and officers of a non-profit organization. It protects those in leadership positions from potential damages and costs as a result of lawsuits that allege a “wrongful act” was committed. Wrongful acts can be defined in a number of ways. Some examples are:

• Fraud

• Financial mismanagement

• Errors in judgement

• Negligence

• Discrimination

• Harassment

• Wrongful termination

It goes without saying that the mission of a non-profit board is to provide experienced oversight and professional direction, so that the organization can fulfill its objectives. Because non-profit boards are not typically subjected to the kind of reporting scrutiny found within the for-profit sector, directors and officers of nonprofits must be especially diligent in managing and maintaining their own performance, behavior, and fiduciary duties. A perceived breach in these areas can lead to unwanted legal action.

Furthermore, because board members are responsible for their own internal procedures and policies, the potential for inadvertent mistakes or misconduct heightens their risk exposure.

Investing in non-profit insurance can help you protect the health and assets of your organization, especially given the reality of living in a highly litigious climate. For more information on how non-profit D & O insurance can help protect your organization, contact one of our certified specialists today.