As Canada’s most connected event and association management company we are pleased to publish guest blogs by our partners. This post is written by Jonathan Bracamonte, Account Executive, Non-Profit Insurance Solutions with LMS PROLINK Ltd.
Serving on a board of directors of a non-profit organization takes a significant amount of your time, knowledge, and patience. It also comes with its share of responsibilities and risks.
Common Law addresses 3 legal duties of Directors & Officers (D&Os):
Duty of Diligence: the duty to act reasonably, prudently, in good faith and view to the best interest of the organization and its members;
Duty of Loyalty: the duty to place the interests of the organization first and to not use one’s position as a director to further private interests; and
Duty of Obedience: the duty to act within the scope of the governing policies of the organization and within the scope of other laws, rules and regulations that apply to the organization.
As a result of an alleged wrongful act committed by the D&Os, any financial damages awarded to a third party can lead to personal financial liability for Directors and Officers. Being a volunteer does not reduce your liability. Liability can rest with an individual board member, or the entire board, as a consequence of a single director’s action or inaction. In most cases, the organizations’ funds will be inadequate to protect a director. The best and most cost-effective way to transfer the risk away from the director is through a Directors & Officers (D&O) Liability Insurance policy.
A Directors and Officers (D&O) Liability Insurance policy provides coverage for damages, judgments, settlements and costs, costs of investigation and amounts incurred in the defense of legal actions, claims or proceedings, and appeals. The majority of all D&O payouts are from legal defence costs incurred. The D&O liability policy will pay to defend you whether the claim/action is frivolous or with merit.
D&O Insurance provides protection for the organization, individual Directors and Officers, employees, members, committee members and volunteers.
D&O Claim examples include:
Discrimination, harassment, statutory liabilities (i.e., taxes and wages owing), mismanagement of assets, misallocation of funds, libel or slander and failure to maintain insurance.
You also do not have to be named in a lawsuit in order to receive protection under a D&O Liability policy. Many D&O policies can respond to the following: i) a written demand for monetary compensation or other types of relief; ii) the commencement of civil, criminal or administrative proceedings; or iii) the commencement of a regulatory or arbitration proceeding.
Who are making claims against non-profit organization?
Based on recent industry statistics, 52% of all claims originate from past or present employees of non-profit organizations. Other sources of claims are from customers, members, donors, creditors, government, competitors and suppliers/contractors.
Non Profit Organizations offering Professional Services
Non-Profits themselves may be responsible for providing professional services to third party organizations for a fee. Professional Liability Insurance or Errors & Omissions (E&O) protects the non-profit in the event a third party (i.e. client) makes a claim against the organization, employees or directors arising out of their professional services. The policy will respond to liability from negligence while rendering or failing to render professional services. Similar to the D&O Liability policy, Professional Liability insurance provides claims assistance and legal representation.
Commercial General Liability for Non-Profit Organizations
The Commercial General Liability (CGL) insurance policy is an essential component of a risk management strategy for a non-profit organization. A CGL policy will respond to protect a non-profit organization if it is sued by an employee or a third party alleging that it is responsible for causing bodily injury, property damage or personal injury (i.e., libel & slander). The CGL policy will insure your organization for “day to day” activities/operations (i.e., general office exposure) and it can also be extended to insure your group for events like conferences, galas, retreats, golf tournaments, fundraisers, etc. where there is an increased potential for bodily injury because of alcohol consumption and physical activity.
The CGL policy will pay for legal defence costs (e.g. lawyer fees, court costs, etc.) and this is very important to note as many lawsuits alleging responsibility for bodily injury, property damage or personal injury are frivolous in nature. For example, if a visitor slips and falls in an icy parking lot and suffers a serious injury, even though the snow/ice removal company hired by your landlord may be the party that is ultimately responsible, it is almost a certainty that your organization will also be named in a lawsuit as the hosting party. The cost to hire a reputable lawyer to defend a statement of claim against your group will be significant even if your lawyer successfully defends your organization. Furthermore, if your organization is deemed to be responsible or partially responsible for bodily injury, the policy will pay for damages or a settlement awarded to the plaintiff. Court judgments will take into consideration loss of income, pain & suffering, rehabilitation costs, etc., and so the payment of damages could be crippling for many non-profit organizations without a CGL insurance policy.
Property insurance is another important product to consider for your organization in the event of fire, theft, windstorm, flooding, sewer back-up etc. Relatively inexpensive, a property insurance policy will pay for the replacement or repair of office furniture, leasehold improvements, electronic data processing equipment (e.g. computers, telephone systems, photocopiers, etc.), computer software, flooring, wall coverings, artwork, and many other items owned or in the custody of your non-profit. The policy will also pay your additional costs associated with resuming your operations at a temporary location while your main location is under repair.
Another valuable benefit of a property insurance policy is that it will indemnify your organization because of criminal activity stemming from an inside or outside threat making this type of insurance coverage an especially important consideration for groups with fundraising operations. In particular, computer fraud coverage is extremely valuable as fraudulent activity via the Internet is one of the most common threats facing organizations that manage funds. This coverage will protect your organization whether it is proven to be a trusted employee/volunteer who is embezzling funds electronically or an outside threat that has “hacked” into your system.
The above is provided for informational purposes only. It constitutes general information relating to insurance protection for non-profit directors and officers. It does not constitute legal, tax, accounting, insurance or other professional advice and you may not rely on it as such.