July 2018 – Rick Szilagyi, Principal

Years ago, someone told me the first question asked by a potential new board member should be, “Is the organization’s board insurance current?” Knowing what I know now, a better question is, “When may I have a copy of the current board insurance policy?” Rationale being, the coverage provided by such a policy can vary greatly. Board members need protection from potential lawsuits which may arise from their participation in board decisions and actions.

The different types of policies a nonprofit should carry depend on the work done by the organization and how it is accomplished. To keep this article brief, we are just covering two – arguably the first two an organization should consider:

  1. General Liability Policy
  2. Board Insurance or Directors & Officers Policy (D&O)

Additional policies to consider are mentioned in the links provided below.

General Liability Policy

General Liability coverage is primarily secured as protection against claims arising from accidents, such as those which may occur at a nonprofit event. Usually, an event venue will ask for proof of such coverage, and perhaps also ask that the venue be named as an additional insured for that event.

Board Insurance

Board Insurance is primarily thought of as providing protection against suits arising from board decisions and actions.

Should you also have coverage for issues addressed in an Employment Practices Policy (EPL)? Even if your nonprofit does not have true employees, and gets its work done solely through the efforts of volunteers, consider reviewing the definitions in a proposed policy. Almost 95 percent of claims against D&O policies are “employment-related,” including harassment, discrimination, and wrongful termination. Can a volunteer in your organization be in a position to be accused of harassment? Probably. Don’t overlook EPL as a consideration.

Insurance is one of those areas where “eyes glaze over” when the topic is brought up. But board members need to understand the coverages they should secure for their organization. It’s part of their fiduciary responsibility.

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The Lexian Management newsletter is for informational purposes only.

Always consult your attorney, accountant, and/or insurance provider to obtain advice with respect to any particular issue or concern.