Running one of the 1.5 million non-profit organizations in the United States can be fulfilling and meaningful. It can also bring significant risk of loss exposures. Every year, non-profit leaders are exposed to Directors and Officers (D&O) claims made against them and their organizations.
With D&O lawsuits on the rise, more non-profit organizations are obtaining D&O Insurance as part of a Management Liability policy. At Philadelphia Insurance Companies (PHLY), we have extensive experience insuring non-profits. We've worked in the sector for 30 years.
Read on for more information about the growing exposures non-profit directors face, and the peace of mind D&O insurance can offer non-profits.
How Management Liability Insurance Protects Non-Profit Leaders
Management Liability insurance policies are insurance products covering exposures directors, officers, and for-profit and non-profit entities may face. According to the International Risk Management Institute, Management Liability policies can cover:
Directors and Officers Liability
This board of directors insurance for non-profit organizations serves as a kind of errors and omissions policy for individual officers and directors. It protects their personal liability for claims made against them that result from their decisions.
Employment Practices Liability
EPL insurance covers claims alleging "wrongful acts" related to employment such as wrongful termination, sexual harassment, and retaliation. Although it can be sold on its own, it's often included in a broader Management Liability policy.
Fiduciary Liability
Under the Employee Retirement Income Security Act (ERISA) of 1974, employers can be held personally liable for mismanaging benefit plans. Fiduciary Liability protects them against these claims.
Download our infographic, "The Top Four Reasons You Need Directors & Officers Liability Insurance."
Who Can Sue Non-Profit Organizations?
The legal standards applicable to non-profit directors and officers are as high as, if not higher than, those applicable to for-profit executives. Because of their fiduciary and legal responsibilities to multiple constituencies, several parties can file as claimants in lawsuits against them, including:
Donors for a misappropriation of restricted donations
Beneficiaries for alleged wrongdoing
Regulatory bodies for alleged fraud or fiduciary concerns
Members for acts alleged not to be in the best interest of the members
Third-party affiliates for alleged harm in the relationship
Employees for alleged wrongful acts including discrimination and wrongful termination
Costs of D&O Claims for Non-Profit Organizations
Typical D&O claims reach six figures--more than most non-profits can afford. Even if the director, officer, or organization is cleared of wrongdoing, legal defense costs alone can be high enough to put the non-profit out of business.
In the case of an adverse judgment, the cost can be much higher. Indemnity payments can push the total costs well above $500,000. If a non-profit organization doesn't carry directors & officers insurance, it may have to pay these costs out of pocket.
Non-Profit D&O Claims Scenarios
Non-profit leaders need to understand the scenarios leading to claims, as well as the associated costs.
At PHLY, we have decades of experience handling D&O claims for the non-profit space such as:
Misappropriation of Funds
A non-profit grant foundation receives private donations supporting the foundation's expressed mission. A claim against the foundation alleges the funds were used for purposes not aligned with the mission. Cost to the organization covered by the policy: $175,000
Breach of Bylaws
A non-profit association is named in a lawsuit filed by its members. The suit alleges the recent election of a new Executive Director violated the association's bylaws. Cost to the organization covered by the policy: $115,000
Key Considerations for Management Liability Policies
Because of the litigation risks non-profits face and the high legal defense costs they often incur, they should strongly consider Management Liability insurance as part of their risk management strategy.
Before choosing a policy, consider, among other important matters:
Limit of liability
This figure is the total amount the insurance company will cover for Management Liability-related claims.
Defense costs and limits
Defense costs are often the most expensive aspect of a D&O claim. Some policies subtract defense costs from the policy's stated limit, lowering the total limit. PHLY offers defense costs in addition to the stated limit of liability.
Claims-made policies vs. occurrence policies
Claims-made policies apply when a lawsuit is filed. Occurrence policies pay claims based on the date of the occurrence itself. Know the difference when choosing a policy.
Among top insurers like PHLY, Management Liability policies are fairly standardized. The PHLY Difference offers key differentiators including:
Expertise in D&O
Longevity in the market
Experience in claims handling for non-profits
What PHLY Offers for Non-Profit Management Liability
PHLY has 30 years experience in non-profit Management Liability. Our team of 100 underwriters across 13 dedicated regional offices offers comprehensive policies designed for non-profits of all sizes.
PHLY's Flexi Plus Five program includes a full suite of coverage for non-profit managers, covering a wide range of needs, including:
Directors & Officers Liability
Employment Practices Liability
Fiduciary Liability
Workplace Violence
Internet Liability/Cyber Liability
PHLY's dedicated Management Liability packages include defense costs coverage in addition to the Limit of Liability, meaning defense costs don't reduce the liability limit.
We also provide Third Party Employment Practices Liability Coverage and coverage for punitive damages, where insurable, with flexible premiums and deductibles to meet any budget.
PHLY's D&O insurance for non-profits meets the needs of non-profits of all sizes and in a wide range of classes, including:
Arts, Culture, and the Humanities
Low-Income Housing
Mental Health Organizations
Community Centers
Services for the Intellectually or Developmentally Disabled
Youth Development Services
Health and Well-being Services
Philadelphia Insurance Companies is a nationally recognized leader in D&O insurance for non-profits. Rated "A++" (Superior) by the A.M. Best Company and "A+" by Standard & Poor's, we know how to support our non-profit partners.
To get more information about PHLY's full suite of insurance coverage for non-profits, contact a PHLY insurance professional today.
And, download our infographic, "The Top Four Reasons You Need Directors & Officers Liability Insurance."