Nonprofit Directors and Officers Liability: What does it cover?

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In my last post, I discussed who is insured under a nonprofit directors and officers liability policy.

Here, I’d like to discuss the types of losses addressed by a directors and officers liability policy (D&O). Note that there is not a standard, government-issued nonprofit D&O policy form. The policies available on the market share similarities, but they are not all the exact same.

One Policy, Two Coverages

Before I dive in, it’s important to understand that nonprofit D&O policies normally include two coverage parts.

  • First, there is the Directors and Officers Liability.
  • Second, there is the Employment Practices Liability.

The policy could be more appropriately called ‘Management Liability.’

This combo policy addresses negligent and wrongful management acts and decisions. Vague, right?

Let’s try to clear things up a tad.

Start with the Exclusions

When a new executive director calls our agency for Directors and Officers Liability, I typically will ask what types of losses they are hoping the policy addresses.

If I hear, “We want the Ds and Os protected in case a client or someone else gets injured or in case we get sued because of advice or counseling we provide,” then I know I need to start by sending the potential client a typical list of D&O exclusions.

Most decent insurance policies, regardless of line of coverage, will cover all losses except those that are excluded. Consequently, it’s smart to look at what a policy doesn’t cover in order to illuminate what the policy actually will address.

My advice: Review the exclusions and if any jump out at you as something you hoped to have covered, make sure to talk to your agent. There’s (nearly) always another policy that will address that exclusion. Many of the exclusions are picked up under your General Liability, Professional Liability, Auto, and Workers Compensation policies

Move to the Insuring Agreements

Usually the first element of the policy will be the insuring agreement. It describes what the policy will pay for. Typically, this section will simply say that the policy will pay (on behalf of the insureds) for any wrongful act during the policy period.

Wide open, isn’t it? That’s why it’s important to bone up on the exclusions, because you will quickly discover that the exclusions will narrow the funnel of coverage quite a bit.

I typed some words in bold to point out one feature of these policies. If a word is in bold type or otherwise highlighted by italics or quotes, then those are important terms found in the definition section of the policy.

Finally Review the Definitions

More than likely the policy will define ‘Wrongful Act’. And the definition will describe the types of acts that are potentially ‘wrongful’.  Bone up on these. If you hold the exclusions next to the definition of wrongful acts, you’ll start to see a clearer picture of what is covered on your nonprofit D&O and EPLI policy.

It’s a good idea to make sure to review each bold word to know what your policy means when it uses certain terms.

Discuss with Your Insurance Professional

Schedule some time with your insurance pro to go through these items. You might uncover gaps in coverage (as you review the exclusions) or be pleasantly surprised by the breadth of coverage found in management liability policy.

It’s only one piece of the puzzle, so make sure you ask your agent to advise you on what’s missing.

As always, feel free to contact me to discuss any questions

Resource: This book by insurance consultant Scott Simmonds is a helpful resource to look over before you buy your D&O coverage (or to evaluate your current coverage). Most helpful is his comparison chart and a very lengthy list of common insurance definitions.

Trackbacks

  1. […] and Directors: I’ve found a lot of confusion about this. Often, a client will assume that a Directors and Officers policy will cover the officers and directors for all types of losses. In reality, the D&O policy only […]

  2. […] The directors and officers are fully covered by a directors and officers liability policy. […]

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