Board of a Not For Profit – What If I Get Sued?

Screen Shot 2016-08-26 at 9.46.37 AMSo you’ve been asked to serve on the board of a local non-profit. Congratulations!!! In my years in business I’ve happily served on several boards and know how rewarding such service can be. However, as a potential or newly minted board member, there are things you should seriously consider.

  1. First, when serving in this capacity, you do have potential liability arising out of your service. The decisions (or failure to decide) on critical issues resulting in a loss can wind up with your defending yourself in court. The good news is that addressing this risk is fairly easy. Here are a few things to consider:Make certain your board maintains Directors & Officers Insurance. Directors & Officers Insurance (D&O for short) is designed to protect the board of directors from loss while acting on behalf of the not-for-profit entity. You want to make certain, should a lawsuit arise, that the board has this important coverage to defend your actions on behalf of the organization.

    Not all D&O Policies are the same. Part of your due diligence as a prospective board member is to make certain the D&O carrier chosen by your board is of quality and has adequate coverage for your exposure. One thing to look for is to make certain that the D&O policy includes coverage for employment practices liability. Not surprisingly, many D&O claims arise out of the hiring/employee management process. In absence of employment practices coverage in a D&O claim, you will be looking to the non-profit to cover losses from their assets. And, if their assets are not sufficient to cover the loss, you may be held personally liable, at least in part, for the loss. Certainly NOT a desired scenario.

  2. Even when your board has D&O coverage, it is wise to review the coverage with your homeowners and personal umbrella carrier to make certain their insuring agreement covers your service on the board. Our lead carrier, Erie Insurance, does extend coverage to many (but not all) claims that could be made as a result of your service. Be sure to check with your board, their agent, and your agent to understand your risk and how insurance will respond should you be sued.

Personally I interview a potential board extensively before I will agree to serve. And, should that board not have D&O coverage (and refuse to purchase same) I personally will not serve on that board as their lack of understanding of the need of the coverage may be indicative of their business acuity and may expose me to unnecessary risk.

Serving on the board of a non-profit is wonderfully affirming, productive, and a noble goal. However, it does expose you to risk, but it’s a risk that certainly can be addressed. Should you have any questions feel free to give us a call. All our best!


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