Cornell Insurance Blog

Need To Know: D&O Liability Insurance for Non-Profits

Posted by Cornell Insurance Services on Sep 8, 2015 11:30:00 AM


D&O Basics

Each business and or company has a back bone and most often that backbone is the directors and officers. Directors and Officers are liable for the company, making sure each department is being run smoothly. However, it is essential for them to be “taken care of” in case of any mistakes. Within the non-profit world, it is important to hold proper Directors & Officers Liability Insurance (D&O) to not only protect the directors, officers and administrators but to also protect company assets. D&O insurance is protection against a breach of duty such as failure to provide services, mismanagement of assets or employment-related issues such as discrimination, harassment and wrongful termination. Since business leaders are responsible for major decisions that impact employees and the general public, they often are blamed if things go wrong. Administration positions have a responsibility to also properly manage risks around the organization. A D&O insurance policy prevents the organization from going bankrupt after an unfortunate mistake. Many organizations overlook this coverage, commonly mistaking it for Professional Liability Insurance.

“One in six company executives -- or 17 percent -- believe their business will experience a D&O related loss in the next years, according to a survey of decision-makers at 451 U.S. companies, more than 90 percent of which had annual revenues of less than $25 million. The survey also found that one in eight survey respondents -- or 12 percent -- had experienced a D&O lawsuit within the past five years. The costs to settle and/or litigate those cases averaged $225,682, with some losses approaching $5 million, the survey found.” (Source).

Coverage Breakdown

To determine eligibility and rates for each organization, D&O insurers look at many different aspects of the business, including the type of business, the company's profit, whether they have had prior claims, and the amount of debt. Insurers also look to see that the organization has communicated the company’s policies to employees with the most up-to-date manual. Codes should be posted in a public area and employees need to sign a waiver upon employment.

There are many elements to a D&O policy, including:

Side A—Protects a corporation’s directors and officers when the company cannot indemnify the individuals.

Side B—reimburses the organization when it indemnifies the individuals, thus protecting the company’s balance sheet

Side C—also known as “entity coverage,” this eliminates disputes of coverage allocation when both the directors and officers and the insured organization are named as co-defendants in a securities lawsuit.

What’s Excluded

  • Fraud
  • Personal profiting
  • Pending and prior litigation
  • Bodily injury/property damage
  • Late claim notice

Things to consider while purchasing D&O

With any type of insurance coverage, organizations should work with brokers that understand D&O policies and understands their specialized line of business. Non-profits should consider the following when selecting D&O coverage:

  1. Who’s being covered? Just the directors and officers or the organization as an entity?
  2. Actions the policy covers. What is outlined for “wrongful act” and “claims”?
  3. Type of coverage for defense costs. The numbers can vary drastically so make sure the “duty to defend” policy defines the insurer’s obligation to pay defense costs.
  4. Is addition coverage needed? Have a broker who is knowledgeable to get you the proper coverage.
  5. Have a separate policy from the current ELP policy to ensure full coverage.
  6. Read the fine print. Make sure the organization is covered from all possible angles without being over ensured.


Topics: directors and officers, liability, non profit