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 Why we changed our name in 2012! |
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Colorado Nonprofit Insurance Agency is a wholly owned Subsidiary of Colorado Nonprofit Association |
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Why Nonprofits Need D&O Coverage Throughout the nonprofit world, directors, officers, and trustees liability insurance (known as D&O) continues to be an important coverage. D&O is often an essential component in the launch of a new organization. For all nonprofits, it remains the last line of defense protecting the personal exposure of their leaders. To the benefit of charitable organizations, insurers have made D&O a more attractive product: premiums are low and many nonprofit D&O policies provide additional coverages beyond the basic offerings. For example, employment practices liability is now a common feature, in part owing to the dramatic increase of claims in this area. Another common additional coverage protects nonprofit schools from lawsuits brought by students or their parents. The nature and scope of coverage under today's D&O insurance policies is unlike other coverage a nonprofit may carry. There is no industry-standard for nonprofit D&O. Rather, each insurer has written its own policy, necessitating close scrutiny of the policy language and a detailed comparison of policies when changing insurers. Nonprofit leaders and decision makers can begin with four key issues to evaluate the quality of an insurance carrier's nonprofit D&O coverage. Who's Covered The definition of an insured party under the policy can vary widely. Some insurers restrict coverage to directors, officers, and the nonprofit agency, but solely in the insurers' role as an indemnifier of the covered individual under a bylaw provision. Other insurers may include managers, supervisors, other employees, committee members, and other volunteers, too. Coverage Agreements Most nonprofit D&O policies use a broadly worded insuring agreement. Generally, the insuring agreement boils down to a promise to cover insured parties for expenses arising out of new claims made during the term of the agreement for wrongful acts alleged to be committed by the directors or officers. The term "wrongful act" is generally defined as an act, error, omission, breach of duty, or misstatement which may cause economic injury to a third party. An important threshold consideration is that D&O is not intended to insure liability for damages arising out of accidents. Other insurance-auto, general liability, workers' compensation, or professional liability-should include the directors and officers of the organization within the scope of insured parties. There are two approaches to the basic D&O insuring agreement. The traditional approach provides reimbursement of the cost of defense and any payout to a claimant. The alternative (often called a "duty-to-defend" or "pay-on- behalf" policy) says the insurer will provide a defense and pay any judgment or settlement of the individual's behalf. Both approaches have advantages and disadvantages. The traditional approach allows the nonprofit and its management to resolve the claim. It is their responsibility and not the insurer's. This approach may require actual payment of defense costs and claimants by the insured before seeking reimbursement from the insurer. The alternative transfers full responsibility for resolving the claim to the insurer-very much like automobile liability coverage. While this alternative approach takes the nonprofit out of the claims process and does not require any pre-payment, it can also take away a nonprofit's authority to control the outcome of the claim-an issue that can be important when your organization's integrity is on the line. Basic D&O coverage has two complementary insuring agreements. The principal agreement covers the nonprofit's obligation (usually under its bylaws) to indemnify its individual directors or officers for their "wrongful acts." In theory when a director is accused of a wrongful act she hires her own attorney to resolve the case through litigation or settlement. She then petitions the nonprofit for reimbursement as permitted under the bylaws. Upon indemnifying the director for her personal expenses, the nonprofit seeks reimbursement from its insurer. In actuality, most D&O policies allow the insurer to take a more active role, including approval of the selected defense counsel and appointment of a monitoring counsel. However, the insurer may not be obliged to provide a defense and only reimburse the organization for its indemnification of the director. The second traditional insuring agreement covers directors and officers for those liabilities which the organization cannot or will not indemnify. The intent here is to pick up those situations where the nonprofit is not able to provide indemnification. For example, an allegation of self-dealing against the best interests of the organization (also known as "conflict of interest") is normally beyond the scope of the bylaws' obligation to reimburse the director. It is possible to purchase this direct coverage on a stand-alone basis, which might be a consideration for large, well-funded foundations that can self-insure their indemnification exposure. An alternative approach collapses the two agreements with a single promise to pay on behalf of all insureds, whether the claims fails within the scope of corporate indemnification or not. D&O is almost uniformly written on a "claims-made" basis, insuring only those claims which are first made during the term of the policy. Once the policy expires, subsequent claims, even those arising out of activities which occurred prior to the policy's termination, are not insured. When changing insurers, it is critical that the new policy not exclude claims which would have been covered by the prior policy, had it been extended. Exclusions Though D&O has broadly written insuring agreements, those promises are subject to a variety of limitations, restrictions, conditions, and exclusions. Their scope often comes as a shock to some directors and officers who incorrectly assumed D&O is the only insurance available to them. They fail to appreciate that they are also an insured under the organization's policies for general premises and operations liability, professional liability, sexual abuse, workers' compensation, automobile liability, and umbrella coverage. Employment Practices Liability Many insurers now include explicit coverage for employment practices liability within nonprofit D&O policies. The policy's insured party for this coverage is the entity itself, as well as the management. The additional premium is typically based on the organization's number of employees, its claims experience, and its employment policies and practices. Employment Practice Liability coverage is usually provided under a separate insuring agreement with its own set of exclusions and limitations and, occasionally, its own limits and deductibles. The scope of coverage often includes:
One major insurer has reported that over two-thirds of claims under its combined policies are against the employer/nonprofit and initiated by prospective, current, or former employees and, as such, would not be covered by a basic D&O policy. Every nonprofit should seriously consider the purchase of D&O insurance for itself and its board members. While the personal liability exposure of a board member is usually not substantial, it still exists. D&O provides financial resources which might not otherwise be available. Further, nonprofit D&O policies can usually be expanded to include coverage for the entity's liability arising out of employment practices-an area of growing concern. About the Author - Ron Boggs Ron Boggs is a respected insurance and compliance consultant sought after for his unique expertise on nonprofit organizations and the issues that affect them. Now retired, for many years he served as executive vice president of First Nonprofit Insurance Company. About First Nonprofit For more than 30 years, First Nonprofit Insurance Company (www.firstnonprofit.com) has provided stable, reliable coverage to 501(c)(3) nonprofit and charitable organizations. Its comprehensive and custom-crafted insurance protection responds to the unique needs of the nonprofit community. The First Nonprofit portfolio of products and services includes property, liability, auto, umbrella, and workers' compensation plus unemployment tax savings products, retirement planning instruments, and directors and officers. For information on our D&O products and other coverages, e-mail info---@---firstnonprofit.com or call 312.715.3049.
The staff at Colorado Nonprofit Insurance Agency has many years of experience helping organizations to determine the appropriate coverage. Give us a call if you would like to talk with us about our insurance programs. Let us address one of your questions!
Nonprofit Spotlight: Circle of Latina Leadership The Circle targets Latinas who are at least 25 years old and are emerging community and grass roots leaders that have a past history of community involvement and volunteerism. They should aspire to make a greater contribution. Ideal candidates want to learn, improve their skills, and be committed to work for the advancement of the Hispanic community. The Circle reflects the rich diversity of the Hispanic Community and includes women from nonprofits, education, government, and volunteers. Hispanics must expand their leadership core NOW to meet the challenge of our growing numbers! Latinas have a unique role to play in this advancement. They are the heart of the family, keepers of culture and faith, and active community volunteers. In the past twenty years, a core of Latinas has risen to leadership. To address the needs of our growing community, however, a greater number of Latinas need to be prepared to lead and serve. The Circle of Latina Leadership aspires to support and mentor this cadre of women. Founded by Juana Bordas in 2000, The Circle of Latina Leadership's mission is to "Prepare the Next Generation of Leaders." As a testament to the success of the program, the Circle is now directed by graduate Erika Reyes and administrated through the Denver Hispanic Chamber Educational Foundation. Follow The Circle of Latina Leadership at www.circleoflatinaleadership.org. Are you making the most of the 2011 Webinar Series sponsored by Nonprofits Insurance Alliance Group? These 60-90 minute, live sessions are both inexpensive and convenient. The discounted session cost is just $25 per login for member-insureds, which makes them ideal for in-service training on risk-management skills, or for polishing and orienting senior management and board members to individual aspects of managing risks in nonprofit organizations. The interactive format permits questions from the participants and responses from the expert(s). All sessions are scheduled for a Tuesday and start at 11:00am Pacific Time (2:00pm Eastern Time). Registration links for each session will be posted on ANI's website approximately 30 days in advance of the webinar date. If you have any questions or need additional information on these webinar series, send an email to losscontrol@insurancefornonprofits.org ANI/NIAC Member Services [FREE SESSION] - August 10, 2011 Are you taking advantage of all the FREE RESOURCES available to you as a member of ANI or NIAC? With budgets being cut and funding down, we want to help you. Spend one hour attending this webinar and find ways to save your organization money. Learn about all of the great trainings and services that are available to you as a member-insured. Finance for Executive Directors - August 16, 2011 Everyone knows that finance is a big part of the Executive Director's job, but how do you know if you are succeeding? If you would like to gain confidence in your abilities to oversee your agency's finances as well as supervise your finance staff, this workshop might be exactly what you need. We will cover topics such as assessing your financial condition, setting realistic financial goals and monitoring financial progress. Essential Elements of a Fleet Safety Program - September 13, 2011 The use of vehicles in nonprofits is as varied as the services they provide. Whether you manage a fleet of vehicles, oversee a mobile group of individuals or simply employ commuters, implementation of a Motor Fleet Safety Program can greatly reduce the risks faced by your clients, volunteers, employees and their families. This webinar will cover the essential elements of a fleet safety program, developing a written program, and implementing a program at your organization. Properly Establishing Independent Contractor Relationships - September 27, 2011 This webinar will detail the importance of properly classifying workers as either independent contractors or employees, with a discussion of the legal liability for misclassification. We will provide participants with a checklist for determining whether an independent contractor relationship can properly be established, discuss the essential provisions in an independent contractor agreement while reviewing a sample agreement, and provide tips on how to respond to a governmental agency audit reviewing independent contractor designations.
The staff at Colorado Nonprofit Insurance Agency has many years of experience helping organizations to determine the appropriate coverage. Give us a call if you would like to talk with us about our insurance programs. |
iNews Articles 2011 
