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D&O insurance for nonprofits
Coverage that supports the people behind your mission
Tailored insurance for directors and officers of nonprofit organizations
Nonprofit leaders make decisions that advance your mission, and they deserve protection that reflects this responsibility. Directors and officers (D&O) insurance for nonprofits supports board members, officers, and volunteers when their choices are called into question. Getting the right coverage helps your leadership team stay focused on the work that makes a difference in your community.
What is D&O insurance for nonprofits?
D&O insurance for nonprofits is a type of professional liability coverage. It helps protect your decision makers from legal claims related to choices they make while serving your organization. If a board member or officer is accused of negligence, they could face personal financial risk. This may include claims about mismanaging funds or violating bylaws. D&O insurance can help with defense costs, settlements, and judgements, giving your leaders support when they need it most.
Progressive Commercial can help you find nonprofit D&O insurance that's easy to understand and simple to manage. You can start a quote online or speak with a licensed insurance expert to learn more.
Why is D&O insurance for nonprofits important?
Directors and officers insurance for nonprofit organizations is important because it shields your company and its leadership from financial losses. Just as with for-profit businesses, executives at a nonprofit can be named individually in lawsuits. Without adequate insurance, their personal assets could be at risk.
D&O insurance also signals to donors, funders, and stakeholders that your nonprofit takes governance seriously. But it's just one type of protection that you need. Learn more about insurance for nonprofit organizations.
Who needs D&O insurance for nonprofits?
Most nonprofits can benefit from D&O insurance since they're required to have a board of directors. Even when everyone is acting with care and good intentions, leaders can make mistakes or questionable decisions.
D&O insurance is an important safety net for the people who guide programs, manage funds, and make decisions on behalf of the nonprofit, including:
- Board members
- Officers
- Executive directors and senior staff
- Committee or advisory board members
- Volunteers who shape programs and policies
Indemnifying nonprofit leadership
Many companies and nonprofits aim to indemnify their leadership, which means the company agrees to cover certain legal costs. But nonprofits can't always do this, especially when money is limited or there are legal constraints. Nonprofit board insurance can protect your directors and officers in these situations by covering costs the organization can't.
Types of nonprofit D&O coverage
D&O policies typically include three types of protection — Side A, Side B, and Side C. Together, these coverages help your people and organization manage D&O claims.
Side A
Side A coverage protects individual directors and officers when their nonprofit can't indemnify them due to bylaws or finances. It protects their personal assets, such as their home and savings, and makes sure they aren't paying out of pocket when the organization can't help directly.
For example, a director makes public comments about a former vendor and is sued for defamation. If the nonprofit can't help with the lawsuit, Side A coverage could step in and cover their legal defense.
Side B
Side B on a D&O policy reimburses the nonprofit when it pays legal fees for directors and officers. This helps the organization avoid covering all defense and settlement costs when it decides to support its leaders.
Here’s how that coverage can work: A treasurer is sued for a mistake in a financial report. The nonprofit pays their legal costs upfront, and Side B coverage reimburses those expenses.
Side C
Side C coverage protects the nonprofit itself if it's named in a lawsuit. It covers certain legal expenses and financial losses tied directly to claims against the organization, not just the people who lead it. This coverage helps safeguard the nonprofit if someone claims it caused harm.
Say a donor sues an environmental nonprofit and claims it misrepresented how funds would be used. Because the lawsuit names the nonprofit directly, Side C coverage can help pay the organization's legal costs and settlements.
What kinds of claims are covered by D&O insurance for nonprofits?
D&O liability insurance for nonprofits covers claims related to the decisions and actions of your executive team and board of directors. The following examples show how this coverage can apply:
Misuse of funds or breach of fiduciary duty
A breach of duty could relate to conflicts of interest, misappropriating funds, or making bad financial decisions on behalf of the organization.
Example: A board member approves a contract with a vendor they're personally connected to without disclosing the conflict of interest. The nonprofit overpays and loses donor funds, leading to a lawsuit.
Noncompliance with grant terms
Grants are the lifeblood of most nonprofits. Leadership is responsible for ensuring the organization meets the objectives tied to funding. Misusing grant money, missing progress reports, or violating the terms and conditions of a grant can lead to penalties or legal action.
Example: A nonprofit uses restricted grant money for an unrelated project, and the funder holds leadership accountable for not following the grant's terms.
Failure to follow bylaws or election procedures
A nonprofit's bylaws outline how the organization works, from director elections to board meeting rules. When directors and officers don't follow these procedures, it can result in internal disputes or operational challenges.
Example: A board member is removed without proper documentation or process, leading to a legal dispute.
Defamation or misrepresentation
When making claims in fundraising campaigns or providing public statements, directors and officers can be held accountable, particularly if false or defamatory information is shared publicly.
Example: A leader makes public statements that damage a partner's reputation or misrepresents the nonprofit's finances.
What doesn't D&O insurance for nonprofits cover?
D&O insurance for nonprofits provides protection for negligence or mistakes. It doesn't cover illegal or dishonest activities. Common exclusions include:
- Fraud or criminal acts
- Intentional wrongdoing
- Internal disputes (for example, lawsuits between board members)
How can I reduce my risk of a D&O insurance claim?
Nonprofits can take proactive steps to reduce their risk of encountering a claim or lawsuit. The following can help protect your organization:
- Keeping bylaws and governance documents up to date
- Following the terms and reporting requirements for grants and other funds
- Documenting board decisions and elections
- Seeking expert advice when needed
- Being transparent with donors and stakeholders
Maintaining a clear track record of responsible leadership not only helps avoid claims but can boost your reputation and build trust with donors and supporters.
How does nonprofit D&O insurance work?
Most D&O coverage is written on a claims-made basis, meaning it applies only to events reported while the policy is active. In contrast, occurrence-based coverage applies to incidents that happen during the coverage period, regardless of when the claim is filed.
For more on this topic, check out our guide to claims-made vs. occurrence policies.
How much does D&O insurance for nonprofits cost?
The cost of D&O insurance for nonprofits will vary, depending on your organization. Insurers consider the following factors when determining your rate:
- Nonprofit size
- Number of employees and directors
- Annual revenue
- Services and mission
- Grantmakers and funders
- Claims history
- Coverage needs
- Location
D&O is a type of professional liability, sometimes called errors and omissions insurance. Learn more about cost of professional liability insurance and get a quote to find your exact rate.
Frequently asked questions about D&O insurance for nonprofits
What's the difference between D&O and EPLI?
D&O covers decisions made by directors and officers, such as accusations of mismanaging the organization. Employment practices liability insurance (EPLI), on the other hand, covers claims related to hiring, firing, and workplace conduct, including discrimination and wrongful termination. Nonprofits often need both types of coverage to protect their leaders, staff, and mission from costly claims.
Does D&O insurance for nonprofits cover acts of fraud or criminal activity?
No. Like most insurance, nonprofit D&O policies usually exclude losses caused by criminal, fraudulent, or intentionally dishonest acts. However, this insurance might still pay legal defense until a court reaches a final guilty verdict.
Is D&O coverage legally required for all nonprofit organizations?
No. There's no federal law that makes nonprofits carry D&O insurance. However, some states set governance standards that can include D&O coverage. Major funders, lenders, and partner organizations may also require it before working with you. And even when it isn't called for, nonprofit D&O insurance is widely considered a best practice for responsible management.
Why choose Progressive Commercial for your nonprofit's D&O insurance
Progressive Commercial makes it easy to get nonprofit D&O insurance. With over 50 years of experience, we know how to protect your organization so you can focus on fulfilling your mission. Just give us a call or start a quote online to learn how we can help.
