Skip to Main Content

The Personal Risks of Sitting on a NonProfit Board of Directors

The Personal Risks of Sitting on a NonProfit Board of Directors

Joining a board of directors of a nonprofit organization is exciting and incredibly rewarding as you give your time, talent, and services back to your community.  Whether it’s your first foray into board membership or you are a seasoned volunteer, it’s wise to step back and consider the responsibilities and inherent risks you will incur during your time as a board member.

Board membership shouldn’t be taken lightly. You will be looked on as a governing part of the company – and that comes with great responsibility. Consider that as a board member, you can be sued personally for any decisions the board makes, and your personal assets could be at risk as well.

What’s the best way to protect yourself and enjoy board membership?

Ask a LOT of questions upfront: Many people decide to join not-for-profit boards emotionally – they love the mission, they want to help and they jump in without doing research. Before you join, it’s important to spend time with the current leadership and ask a lot of questions!

  • How are finances handled – what are the levels of checks and balances?
  • Do you know the long-term vision of the organization?
  • How are donations and fund-raising campaigns managed?
  • What is the culture like?  How happy are the employees – is there a lot of turnover?
  • How are volunteers trained and managed?
  • Will this be a working board or just one that oversees the big vision?

All these questions are important because, as a board member, you have a fiduciary responsibility to ensure the organization does business in a legal and ethical way. 

Know your role: It’s important to understand your role on the board – what will your responsibilities be? For instance, if you do not have a finance background and as a board member, you will be asked to evaluate investments and make decisions on long-term financial strategies that could be problematic. Mistakes may happen that could be financially devastating to the organization, resulting in litigation against the organization and you.

Stick to what you know best, protecting you and the organization from potential lawsuits.

Ensure a layer of protection: We live in a very litigious society – lawsuits can happen for any reason at any time, even to innocent people and organizations. Even though you go through the due diligence of asking questions and understanding your role on the board, you can still be at risk.

When you join a not-for-profit board, you should receive a packet of information that includes a copy of the organization’s “Directors & Officers” or D&O Insurance. This liability insurance is intended to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of an organization. It can also cover legal fees and other costs incurred by the organization due to a lawsuit. The exception is for fraudulent or criminal activity by the board member. So if you were to intentionally mishandle donated funds and were sued, the organization’s D&O coverage would not help you!

But what if there is no D&O Insurance, or you feel it’s too little?

First, assess your personal risk tolerance – and second, call your insurance broker to discuss a Personal Umbrella policy.

Coverage differs by carrier and state, but most personal umbrella policies will offer a level of personal liability coverage, or an endorsement can be added to protect you in the event you are sued while sitting on a not-for-profit board of directors for which you are not getting paid.   

When it’s time to join a board of directors, do your diligence to understand everything you can about the organization and ensure you are protected with ample coverage by the organization’s Directors and Officers policy. As an extra layer of protection, ensure you have Personal Umbrella Policy that will protect you in the event you are sued while supporting a not-for-profit with your time and talents as a board member. 

If you are unsure your assets are properly protected because you are sitting on the board of a not-for-profit organization, give us a call at (800) 383-8283 or stop by one of our convenient locations today. We are happy to do an assessment of your current coverages and help guide you through the process of ensuring you are protecting what you value most.

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.