D&O Lawsuits: Is your non-profit sweeping this risk under the rug?

Posted by John Cofini on Mon, Jun 25, 2012 @ 06:11 PM

According to a new Chubb Public Company Risk Survey, nearly 1 in 4 public companies have been hit with a lawsuit. Yet despite the clear odds of being sued, more than 80% of public company executives simply don’t take the risk seriously.

They should, and so should you.

With a 14% increase in mergers and acquisitions over the past year, along with more vigorous enforcement of the Foreign Corrupt Practices Act, your directors and officers have greater exposure to lawsuits than ever before.

Part of the complacency is due to a common myth often associated with non-profit D&O exposures – the belief that there usually aren’t many sources of claims because nonprofits don't have shareholders. It’s true that most lawsuits filed against non-profit boards come from current and former employees. But as a non-profit, you have duties and responsibilities to a host of constituencies, all potential plaintiffs in legal actions: 

  • Insiders. Your current and former nonprofit staff members could bring legal action against you alleging a host of wrongful acts including wrongful termination, discrimination, sexual harassment, and Americans with Disabilities Act violations. 
  • Outsiders. Third parties such as vendors, funders or other non-profits that have a relationship with your non-profit could allege harm caused by your non-profit and/or your directors, officers or employees. 
  • The Entity. Your non-profit could bring an action against its own directors and officers, such as claims by current management against a former trustee. Claims by the entity against its directors and officers will likely be excluded under most non-profit D&O policies. 
  • Directors. A non-profit director can sue another board member alleging violation of a duty owed to the non-profit. 
  • Beneficiaries. The recipients of your service - the people you’re in business to help — could bring claims against your directors and officers alleging wrongdoing. 
  • Donors. Contributors to your non-profit could sue your directors and officers alleging misuse of a restricted gift.

A suit brought by any one of these entities could cost your organization millions of dollars and threaten your reputation, your mission, and possibly your survival.

So how well is your non-profit managing this risk?

Although your commercial general liability policy probably lists your directors and officers as insureds, D&O policies cover very different risks, so it’s important to work closely with your insurance provider to make sure your coverage is adequate and appropriate for your situation.

It’s also vital to have documented merger and acquisition protocols, which may help improve your organization’s defense in court or result in a lower settlement amount. And by proactively managing this exposure, you have a greater chance of getting more favorable terms and pricing for your D&O liability insurance.

Don’t let your vital mission be threatened by a devastating lawsuit. Prepare today so you can continue to make better tomorrows for your beneficiaries. BNC Insurance and Risk Advisors is your non-profit insurance expert for analysis and advice about the New York business insurance you’ll need to protect your non-profit company. Contact us today for a New York Insurance quote!


Tags: new york business insurance, New York insurance quote, non-profit insurance