Q&A: Do You Need Nonprofit Board Insurance?

  • By: Gina Guy
  • December 30, 2022
Nonprofit board insurance
Reading Time: 3 minutes

Learn how nonprofit Board of Directors & Officers Liability (D&O) insurance provides organizations with resources to navigate lawsuits or other legal matters.

Members of the nonprofit board of directors face potential personal liability for the decisions they make, the things they say, and the actions they take. Additionally, many nonprofit board members lack experience about the legal duties and responsibilities they face. Put simply: Nonprofit boards benefit from directors & officers (D&O) liability coverage.

Read on to learn more about nonprofit board insurance, as well as how board management software helps nonprofit boards improve their meeting effectiveness and compliance with regulatory guidance.

What is Nonprofit Board Insurance?

Nonprofit board insurance is more popularly known as Directors & Officers liability insurance, or D&O for short. D&O coverage protects current, former, and future directors and officers of a nonprofit organization. This type of insurance indemnifies the members from settlements, legal fees, and financial losses from being held liable in legal action, including breach of fiduciary duty.

Board Meeting

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Is Nonprofit Board Insurance Important?

To promote volunteer workers for nonprofit organizations, the U.S. Congress passed the Volunteer Protection Act in 1997 (the Act). The Act provides immunity from civil liability for injuries caused by the negligence of volunteers who work for nonprofit organizations or governmental entities. It assures volunteers of a clear and convincing standard of proof for punitive damages. 

The Act preempts state law to the extent a state law is inconsistent with the Act. However, a state may expressly pass legislation to opt out of the Act. The Act provides a limit of liability for harm caused by the volunteers, so long as they: 

  • Acted within the scope of their responsibilities
  • Were licensed, certified, or authorized by the statutory authorities where the harm occurred
  • Weren’t grossly negligent or reckless of the rights of the harmed person

Nonprofit board insurance is important because not all actions taken by a board of directors are covered by the Volunteer Protection Act. Many board members receive payment for their services, so they don’t qualify as volunteers. 

Types of Coverage for Nonprofit Boards

D&O insurance doesn’t cover general liability claims for property damage or bodily injury. Those are usually covered under the organization’s general liability policy. D&O coverage protects against the costs of defense, investigations, settlements, judgments, and extradition, and protects the personal assets of board members.

Typical claims covered by D&O coverage include the following wrongful acts:

  • Breach of fiduciary duty
  • Actual or alleged errors
  • Acts or omissions
  • Failure to comply with workplace laws
  • Theft of intellectual property
  • Misrepresentation or misleading statements

What to Look For in D&O Coverage

When reviewing several D&O insurance offers, consider whether the policy contains:

  • Exclusions for criminal acts and exceptions to those exclusions
  • Notification requirements
  • Coverage for insured versus uninsured
  • Unique provisions not found in other policies

Is D&O Insurance Mandatory?

No. However,  small- to mid-sized nonprofits with fewer assets will benefit from D&O insurance, notably from the protection it offers against expensive legal proceedings.

Is D&O Expensive?

The median cost of D&O coverage for nonprofits is around $855 annually for $1 million in coverage. Nonprofit boards that don’t qualify for coverage under the Act and who proceed without D&O coverage may find the expenses from one claim against the board exceed the insurance premiums for D&O coverage. 

Getting Started With OnBoard

OnBoard is an innovative, user-friendly, web-based platform that helps nonprofit organizations improve meeting efficiency. 

OnBoard software makes virtual collaboration with team members outside the board meetings space seamless and easy. In addition, board members will find the cloud-based software makes it easier to distribute minutes and other documents, while agenda creation is simple with drag-and-drop functionality. OnBoard also improves organizational compliance with statutory and regulatory guidance by reducing risk and vulnerable endpoints.

To learn more, contact OnBoard today, or download the Board Meeting Agenda Template to simplify your next board meeting.

Frequently Asked Questions

  • What is the Difference Between D&O and E&O Insurance?

    As the name implies, D&O coverage protects directors and officers of the nonprofit against accusations of negligence while carrying out their duties. E&O coverage protects employees of an organization from acts, errors, and omissions made during their employment.

  • What Risks Does D&O Insurance Cover?

    D&O insurance provides protection for the personal assets of the directors and officers, as well as the assets of the organization itself. D&O insurance does not cover acts that are:

    • Dishonest
    • Fraudulent
    • Criminal in nature 
    • Malicious

  • Does D&O Insurance Cover All Employees?

    No, D&O coverage applies only to directors and officers of the organization.

  • Does D&O Insurance Cover General Liability?

    No. D&O insurance does not cover general liability claims for bodily injury and property damage. D&O protects the board of directors and officers from the costs of defense, investigation, settlements, and judgments resulting from a finding of negligence or breach of fiduciary duty in carrying out their roles and responsibilities.

  • Does D&O Insurance Cover Wrongful Termination?

    D&O insurance covers claims of :

    • Former employees who believe they were wrongfully terminated
    • Prospective candidates who allege they weren’t hired due to discriminatory employment practices

Board Meeting

Ensure effective, efficient meetings with our comprehensive Board Meeting Agenda Template.

About The Author

Gina Guy
Gina Guy
Gina Guy is an implementation consultant who specializes in working with nonprofit organizations get the most from their board meetings. She loves helping customers ease their workloads through their use of OnBoard. A Purdue University graduate, Gina enjoys refinishing furniture, running, kayaking, and traveling in her spare time. She lives in Monticello, Indiana, with her husband.