5 Tips for Reading (and Understanding) Your Nonprofit D&O Policy

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When was the last time you read your insurance policies?

When was the last time you started reading your insurance policies only to give up in frustration?

Since you drew the short straw and have been chosen ‘insurance guru’ of your nonprofit, it behooves you to read your policies and help your team know what’s covered.

Below are 5 suggested tips for digging into your Nonprofit D&O policy. While I can’t make your brain understand all insurance terminology, we can start you on the path to being a more educated insurance buyer.

I’m using common or typical elements of a Nonprofit Management Liability policy* to dispense these tips and suggestions.  I’ll call it  ‘D&O’ policy for short, but it usually includes both directors and officers and employmentpractices liability) to give you some tips.
how to read an insurance policy

Do you ever feel like this when you read your insurance policy? Photo Credit: CollegeDegrees360 via cc

1. Be Aware of the Flow of your D&O Policy

Look at your policy like you might a novel or a conference agenda. Be aware of the flow or movement of your policy. Once you know the different sections, you can start gaining some understanding.

There are five main sections or movements of a nonprofit management liability policy:

  1. Insuring Agreement: This section gives the overview of what the policy should be covering.
  2. Explanation of how claims reporting works.
  3. Definitions: Terms are important in insurance. This section is vital.
  4. Exclusions: This section clarifies what is NOT covered.
  5. Coverage extensions and additional policy conditions: Here, carriers will provide some technical info about how the limits work, further clarification on claims reporting, and other items.

Some carriers will give different names to these sections or break them down into subsections, but these five are generally present in every D&O policy.

It is helpful to know this flow of your policy so you can have the proper expectation as you approach your policy. If you want to know what the contract is about, go to the insuring agreement. If you want to know what will NOT be covered, hit up the Exclusion section.

2. Be Aware of the Words in Bold

As you read the policy, you’ll note that there are words in bold.  That is not an attempt by the insurance carrier to mix the design up.

The bold type mainly functions to let you know the word or phrase will be in the Definitions section of your policy.

The secondary function is to let you know that the term is important.

For example, when ’employee’ is shown in bold type, it’s a clue that ’employee’ has special significance and might mean something slightly different in the policy than it means in the dictionary.  Most nonprofit D&O and EPLI policies will include interns, volunteer workers, and independent contractors under the definition of ’employee’.

Here’s an exercise: Read your Insuring Agreement section (shouldn’t be too long).  As you run into words in bold type, look up the definition in the Definitions section. You’ll start to get a clearer picture of what is covered by your policy.

3. Take Note of the ‘Wrongful Act’ definition

Most carriers use the term ‘Wrongful Act’ to describe the type of act that might lead to a claim against the insured company or any insured person.

Here are some examples of common items included in the Wrongful Act definition in a D&O or EPLI policy:

  • Actual or alleged error in statement or misleading statement
  • Breach or neglect of duty
  • Personal injury wrongful act (libel, slander, etc.)
  • Discrimination
  • Invasion of privacy
  • Retaliation
  • Negligent training, hiring, supervision
  • Sexual harassment
  • And many, many more (especially as it relates to Employment Practices Wrongful Acts).

As you familiarize yourself with what is included in your D&O/EPLI policy’s Wrongful Act definition, you’ll start gaining clarity regarding what the policy is intended to cover for you and your nonprofit.

4. Review the Exclusion Section for any ‘Gotchas’

Most, if not all, D&O policies* include this idea of ‘breach or neglect of duty’. This is a very open-ended idea. Many different types of incidents can be included in a ‘breach or neglect of duty’.

Therefore, after familiarizing yourself with how Wrongful Act is defined, I’d recommend heading straight for the Exclusions section of the policy to understand what the policy does NOT cover.

A mistake my startup nonprofits make is to assume a D&O policy covers Directors and Officers for any type of claim that could be made against the Ds and Os.  This can be a dangerous mistake, especially if your nonprofit provides direct or referral social services.

If a client is insistent, I often recommend reviewing the exclusions for any ‘Gotchas’ – those types of claims that my client expected the policy to cover that, in truth, it does not.

Common exclusions in a Nonprofit D&O/EPLI policy:

  • Bodily injury
  • Property damage
  • Professional liability related claims (i.e. claims involving counseling, case management, medical, or other services that are considered professional in nature)
  • Injuries to employees (workers compensation)
  • Criminal acts (the policy will not defend any insured person who knowingly committed a criminal act)
  • Abuse or molestation claims
  • And others (policies vary from carrier to carrier)

In addition to the exclusions found in the Exclusion section, many carriers will take on exclusions by ‘endorsement.’ An ‘endorsement’ is policy wording that is tacked on to the policy to add to, remove, or limit coverage.

Common exclusions by endorsement, depending on the type of services your nonprofit provides:

  • Failure to maintain proper insurance: In other words, if you opt out of general liability and have a general liability claim that isn’t covered, a claimant might make a claim against your nonprofit for not maintaining appropriate insurance. Some D&O carriers will include this exclusion if they know that you do not have general or professional liability.
  • Absolute Abuse and Molestation Exclusion: While Nonprofit EPLI/D&O policies include coverage for sexual harassment, they do NOT intend to cover abuse or molestation claims. Some carriers will add this exclusion to clarify that they do not intend to cover abuse or molestation, especially that which occurs against the clientele of the nonprofit.
  • Personal and Advertising Injury Exclusion: This exclusion can sometimes be attached if there’s a  heavy publishing, speaking, or political component to a nonprofit’s mission.

There are others, but those are the main common exclusions.

A pro tip when you review the exclusions: If any exclusion makes you nervous, ask your insurance agent if you have another policy that picks up for the type of claim that is excluded. You’ll find that most of the time, the claim is covered elsewhere if you have a proper insurance program in place.

5. Review All Conditions and Endorsements (The Miscellaneous Mess after the Exclusions)

There’s no way around it. If you want to be aware of some of the additional bells, whistles, and policy features (and holes), you must the miscellaneous conditions and coverage extensions in the sections following the Exclusion section.

Here’s where you’ll find the following:

  • How the Limits of your policy and any Deductibles (or Retentions) work
  • How the costs of defense work
  • How domestic partners or spouses might have some coverage in the policy
  • How cancellation or nonrenewal affects the coverage you had for any claims that come to light AFTER you cancel (hint: little to none, depending on a few things).

While all Nonprofit D&O/EPLI policies are different, it’s in this section after the exclusion that many insurance carriers will add their bit of flair to their policies. The endorsements (policy additions) also will give you clues regarding how your policy works.

To Sum Things Up…

It is very difficult to make any kind of legal contract simple to digest. An insurance contract is no different.

Hopefully, though, if you take some time and use some of these suggestions, you can gain a better grip on what your D&O policy is intended to cover for you and your nonprofit.

You’ll also find that these principles will help you reading your general liability, professional liability, and other commercial insurance policies.

If you take on this challenge and have questions, ask your agent. That’s what agents are for.

Or you can reach out by email or leave a comment below. I might be able to help.

*D&O/EPLI policies vary by carrier. Make sure to review your policy to confirm this information – or discuss with your insurance agent. The information provided here is for educational purposes. Discuss your particular situation with a trusted professional. 

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