Tips for limiting liability for potential nonprofit board members
Let's face it, there is more to work than filling a chair between 8 a.m. and 5 p.m. As business owners we need to be profitable, manage our resources and be good community citizens.
Being a good community citizen has a positive effect on our corporate image, increases our sphere of influence and makes us feel good about the positive impact we have on our community.
However, being a good community citizen can also involve an element of risk.
Being active on a nonprofit board of directors is a great way to make a difference. Whether it is a policy or working committee, as a board member you can help set a direction and make decisions that can have many positive effects. Let's tackle the following couple of questions that are common regarding this topic:
- Am I personally at risk when I serve on a board?
- I have a personal umbrella insurance policy. Will that protect me?
Individual board members can be held legally responsible for decisions they make or fail to make on a board of directors.
Most personal umbrella policies extend over home and auto exposures and some do address involvement on nonprofit boards. Specifically, umbrellas may address any bodily injury or damage of property you may cause to a third party while serving on a board. What most personal umbrella policies do not address is management or financial decisions made while in the board member role. It is important to read your insurance contract and understand how and if you are covered.
Directors and Officers (D&O) insurance is designed to address management decisions that are made while serving in the role of a director or officer of an organization. One common misconception about D&O insurance is that it covers members for acts they know to be wrong. Like many insurance contracts, coverage excludes intentional or illegal acts.
The following example is offered by Philadelphia Insurance, a company offering D&O insurance to nonprofit organizations:
Two years after five acres of property was donated to a foundation, the donor sought to revoke his donation. The Insured had already begun to develop the property as a residence for disabled children. In this example, although the judge found in favor of the Foundation, defense costs of $100,000 were incurred.
Still want to serve your community by working on a board of directors, while protecting yourself from potential liabilities, you ask? First, before you join an organization, interview the group's board and ask if they have insurance to protect its members.
And if you are a nonprofit organization, make sure you have D&O insurance in place. This will help you recruit and retain solid volunteers to help your organization flourish and grow.
Tony Johnson is an Accredited Advisor in Insurance at Davidson Insurance in Vancouver. He can be reached at 360.514.9550 or Tony@Davidsoninsurance.com.