Starting a new nonprofit organization means, among other things, working your way through a checklist that can seem daunting. You dedicate yourself to a cause you’re passionate about, establish the practices that will allow your new organization to serve that cause, find premises, hire employees, and recruit volunteers.
At some point, with your attention focused keenly on all these essential items, you need to find a group of equally passionate and talented individuals to comprise your new Board of Directors.
Effective Boards are essential for the success of nonprofits of all sizes. With responsibilities including selecting an Executive Director, ensuring resources are available, serving as the public face of the organization, fundraising, and making sure ethical and legal integrity are upheld, and you want to make sure you get the best people. The best people are only going to want to work with you if they feel they are adequately protected.
Insurance, and particularly Directors & Officers (D&O) insurance, can be one of those items on your checklist that’s easy to overlook. While you’re in the building every day, you’ll need property coverage. With volunteers and the members of the public that you’re serving coming in and out, there’s also importance to have liability coverage. But what about the liability facing those you’ve selected to guide your organization?
Board members can be sued for a range of issues, including breaching their duty as fiduciaries to the organization, engaging in conflicts of interest (whether intentionally or unwittingly), and not following a donor’s intended use of funds. With the potential for legal fees and judgments to exceed the organization’s liquid assets, a suit can seriously; damage the nonprofit’s ability to operate. In 2011, Blue Avocado, the online magazine for nonprofit leaders, published the results of a survey conducted of over 10,000 nonprofit organizations, with a couple of critical discoveries:
- Roughly 1 in 100 nonprofits file a Directors & Officers claim each year
- The average cost to settle one of these claims is $28,000
- The average legal cost of defending a claim is $35,000
A D&O policy can provide critical defense dollars to a Board and the organization in the event of a frivolous claim or an allegation with merit. In many cases, the by-laws require an organization to indemnify (or reimburse) its Board if they are sued in their capacity as Board members, so a D&O policy protects not only the Board but also the organization’s balance sheet.
The organization’s annual revenue determines the cost of this specific coverage. For smaller nonprofits, policy premiums typically start around $500 – a low price to pay for your peace of mind. With an adequately protected Board leading the way, your organization can securely work towards fulfilling its mission and making the community around it a better place.
The Horton Group employs an experienced team of nonprofit insurance experts capable of assisting clients with these needs. When issues in your nonprofit business arise, is your broker prepared to deliver the support you need?
Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.