Directors and officers play prominent roles within many nonprofits’ management or leadership structure – they are appointed or elected to effectively unify, run and operate the organization. With their roles comes a lot of responsibility – and personal liability risk.
To avoid being blindsided by costly claims, it’s important to be aware of the top sources of directors’ and officers’ claims:
Like any other organization, management is held responsible for appropriate and law-abiding employment practices. In a nonprofit, directors and officers are responsible for avoiding wrongdoing or issues regarding employment, as well as any human resources-related concerns. Failure to comply with this important element of the organization could be costly for a nonprofit and its directors or officers.
A nonprofit works for one or multiple causes and helps service individuals, groups or subjects in the community that are in need. As an officer or director, there is a duty owed to the organization and its cause. Failure to perform this duty or appropriately service beneficiaries could lead to trouble for nonprofit leaders if a claim is made against the organization.
Nonprofits often work with other organizations, such as vendors, funders or partner nonprofits. These relationships should be handled with care, as these organizations may allege injury caused by the nonprofit. While a good relationship will not always prevent an allegation or claim, it encourages compromise and teamwork when handling issues between the two parties.
Handling of Gifts and Donations
Working on behalf of a cause in the community will often present opportunities for groups, individuals and other supporters to give gifts or donations to the nonprofit. It is the responsibility of directors and officers to use these gifts and donations as intended. Any misuse could lead to a suit against the organization and its leaders.
Not Following State and Federal Laws and Regulations
All nonprofits and its leaders must comply with state and federal laws and regulations. This includes following the requirements of the U.S. Internal Revenue Service and the U.S. Department of Labor. Failure to do so could result in legal action against the nonprofit and its directors and officers.
Strong insurance coverage is another way to protect your organization from the unexpected. General liability coverage for a nonprofit organization may not be enough to protect directors and officers. Your organization can purchase Directors and Officers Liability Coverage as an additional coverage. This coverage offers protection from:
- Rising court costs as a result of negligence, conflict of interest and misrepresentation lawsuits;
- Increasing litigation, as grounds for bring law suits is expanding;
- Decreasing volunteers, as individuals are not willing to risk personal losses to serve the organization after a suit has been filed; and
- Changing attitudes in the courts, as the legal doctrine of charitable immunity is typically no longer recognized.
Consider the risks directors and officers face, and look into additional insurance coverages to ensure adequate protection.