Invited to serve on a nonprofit board? Asking this question could save your neck

    The CTG Team | 5.1.17    

When do we meet? How much time will I have to commit? What would be my responsibilities? Do I have to help raise money?

Those are all good questions to ask when you’ve been invited to serve on a nonprofit board. But one question is absolutely vital:

Do you carry directors and officers liability insurance?

If not, you and other members could be on the hook individually for the board’s decisions.

If something prompts a lawsuit and there’s no D&O coverage, that puts you at personal financial risk.

Here’s a cautionary tale: A donor who died left an inheritance to a church on the condition that the money be spent on a new piano. The church instead spent the funds on new windows and other building projects.

The deceased donor’s son – already miffed that his mother left money to the church – sued on the grounds that the inheritance was not spent in accordance with the family’s wishes. Each board member could have been liable in that lawsuit, if not for D&O coverage.

 

Because the church was a Caudill Thornquist Group client, we made sure that D&O liability insurance was in place. That coverage paid to defend the suit in court and protected the board members from having to pay back the money.

More than that, we made sure that the church had a proper amount of D&O coverage. In many cases, a nonprofit might have D&O liability insurance, but it’s an amount so low that board members are still exposed personally.

At Caudill Thornquist Group, our D&O policies come with at least $1 million of coverage to start.

D&O insurance protects board members against liability stemming from governance decisions or financial errors made by the board. Make sure your nonprofit’s D&O insurance also covers employment-related claims like wrongful termination, discrimination and improper classification of an employee as exempt from overtime or as an independent contractor not eligible for benefits.

Employment claims are the most common D&O claims, and they also tend to be the most costly.

Serving on a nonprofit board with a mission that inspires you can be a very rewarding experience. But joining a board shouldn’t be volunteering to give up your personal financial security.

And it doesn’t have to be, if the nonprofit has adequate directors and officers liability insurance in place.