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October 3, 2011 / Brett Cohrs

Directors and Officers Liability 1: Not JUST for Ds and Os

I get calls all the time from clients needing Directors and Officers (D&O) insurance.  While I’ve addressed before the fact that D&O is NOT the only coverage needed for a nonprofit organization, I haven’t provided a thorough analysis of why D&O is vital to a nonprofit.

The next few posts will address the topic of Directors and Officers insurance (which in the nonprofit realm normally includes Employment Practices Liability–a misnamed coverage if ever there were one, in my opinion).

First up: Who Is An Insured?

If you’re a relatively green nonprofit manager with no familiarity with crazy terms like ‘insured’, I’ll start there.

An ‘Insured’ is an entity or person who has coverage under a policy.  For example, on your auto policy, you as owner of the vehicle are an ‘insured’ because the policy will cover your liability if you cause an accident.

It would make sense that on a D&O policy, that the Directors and Officers of the organization would have coverage. They do–don’t stress there. But you’ll be pleased to know that a bunch of other folks are included as insureds on most available D&O policies.

Who else besides the Ds and Os has coverage under the policy?

To put it another way, if _________ was named in the lawsuit, would he, she, or it have coverage under your D&O policy? Each policy is different, so check your own. The following are possible insureds on many standard nonprofit D&O policies:
1.  The Organization:  The entity itself would have coverage and defense for a covered loss under a D&O policy.

2.  Directors, Trustees, Officers:  These are the main individuals that are concerned with the policy. One feature some companies have is that they address past, present, and future individuals in these roles–check for this handy inclusion.

3.  Employees: Did you know that one of your employees could be named in a suit that might be covered under this policy? Some insurance companies clarify full time, part time, temporary and seasonal.

4. Volunteers:  Many nonprofits are solely volunteer led. Some of these volunteers do virtually the same work as a paid executive director, including major decision making and fund use choices. Volunteers are typically included under the definition of ‘insured’ in nonprofit D&O policies. An important note here: volunteers might be listed separately under the ‘insured’ definition or included under the definition of ’employee’.

5.  Et cetera: Different companies include in their lists items like committee members, heirs, estates, independent contractors, staff, legal representatives, and so on.

Part of D&O providers’ attempts to differentiate themselves from one another is the inclusiveness of their definition of who is insured. When you get options and there are big price differences, you might want to spend a bit more if it means having a broader definition.

The Upshot: Focus on finding the definitions of ‘Insured’, ‘Organization’, ‘Employee’, and anything that is kind of like that. It will show you who might be covered by the policy if there’s a claim to which the D&O policy applies. Typically, broader definition=better.

You might be happy to know the group that is included is much larger than you realized.

*Disclaimer: This is intended as information only. ALWAYS discuss  your policies and insurance needs with a licensed insurance agent. Each organization is different and should be addressed by its particular needs.

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