It is a prevalent misconception that the law shields nonprofit organizations from responsibility, but this is not always the case. In reality, the federal Volunteer Protection Act does not cover all conduct of directors and executives of nonprofits.
To protect against their directors’ and officers’ wrongdoings, nonprofits need to have a D&O insurance policy. In this piece, we’ll consider some of the best providers of this insurance for nonprofits and discuss all details that you need to know about nonprofit D&O insurance.
- 5 best D&O insurance companies for nonprofits
- What is D&O liability insurance for nonprofits?
- Why do nonprofits need to have D&O insurance?
- What coverage does Directors and Officers (D&O) insurance offer non-profit organizations?
- How much does nonprofit D&O insurance cost?
- How to find cheap D&O insurance for nonprofits
- What is excluded in a D&O insurance policy for nonprofits?
5 best D&O insurance companies for nonprofits
Hundreds of insurance companies offer D&O insurance and other insurance policies for nonprofits. We have done intensive research into these companies and recommend the 5 best providers for your consideration:
- Simply Business: Best for finding cheap coverage from reputable carriers
- CoverWallet: Best for comparing quotes
- Nationwide: Best for custom policies
- Smart Financial: Best brokerage firm if you prefer working with an experienced agent
- Travelers: Best for experience
Simply Business: Best for finding cheap coverage from reputable carriers
Simply Business is an insurance marketplace where companies can find the insurance policies they want at the cheapest rates. The company has access to over 20 providers and can offer quotes on different policies, including D&O insurance. They vet the providers on their platform carefully to ensure that these carriers are reputable and have excellent financial strength.
- Over 20 providers are available
- Fast online quotes
- Easy to get and compare several quotes
- Reasonable rates
- If you prefer a particular carrier that they don’t work with, you’ll need to look elsewhere
- If you need a file a claim, you have to do that directly with the carrier, Simply Business doesn’t handle claims
CoverWallet: Best for comparing quotes
CoverWallet is an internet insurance broker where you can find quotes from different insurance providers. CoverWallet does not have insurance policies; instead, they connect customers to providers with the best prices available on the internet. Their adaptable system makes it simple for charitable organizations to obtain insurance protection that meets their requirements and financial constraints.
- Customizable plans
- Simple administration of policies online
- Fast online quotes
- Quotes are limited to their partners
- Instant and online quotes are not always available
Nationwide: Best for custom policies
Nationwide is a large insurance company that offers wonderful policies to companies across the United States. Being a corporation with a foundation that has donated over 500 million dollars to charities, you can be sure they understand the business. With their experience and strong financial standing, the company can provide custom insurance policies for nonprofits.
With their D&O liability coverage for nonprofits, the named insured and spouse can serve on up to 5 qualifying organizations with a $1 million yearly aggregate limit.
- Customized policies
- 24/7 support available
- Online quotes may not be available always
Smart Financial: Best brokerage firm if you prefer working with an experienced agent
SmartFinancial Insurance is a digital insurance comparison company. Like CoverWallet, they offer real-time pricing and insurance services in all 50 states through their agreements with carrier and agency partners. These partnerships allow SmartFinancial Insurance to serve customers in all 50 states. They work with an intensive network of agents who are very knowledgeable and experienced in offering insurance to nonprofit organizations for decades.
- Hundreds of agents who are knowledgeable and experienced in your particular niche and the coverage that you may need
- Simple, easy-to-use platform
- Discounts may be available
- Available in all states
- Limited digital capabilities
- You have to work with an agent
Travelers: Best for experience
Travelers have been a household name in the insurance industry for about 165 years. Travelers offers governmental, private, and nonprofit D&O insurance. Travelers can protect you and your organization and also explain D&O insurance.
To obtain a quote, you must find a local insurance agency and apply for a policy. An agent will call you after you drop your details on their website.
- Long record of professional experience
- High creditworthiness
- Provides diverse insurance coverage.
- Online quotation unavailable
- No live chat.
What is D&O liability insurance for nonprofits?
Directors and officers (D&O) insurance is a special insurance policy designed to safeguard directors’ and officers’ assets when they are sued for improper acts committed at their job. This insurance can also cover the costs of defending against such cases.
D&O insurance policies provide liability coverage for directors and officers of a firm to protect them from claims resulting from their activities on the job. In exchange for a monthly or annual premium, the insurer promises to reimburse specific financial losses specified in the policy after a deductible has been satisfied. The coverage supplied by the insurer is subject to limits that can be either policy-wide or coverage-specific (i.e., sub-limits).
If an officer or director of an NGO gets sued, they would call their company’s legal department, which would then contact their D&O insurance provider. If the claim is accepted, the insurer will pay for the defense and any settlement expenses, according to the policy’s terms and restrictions. With a duty-to-defend policy, the insurer is required to defend and direct the insured’s defense. With a duty-to-pay policy, the insurer is only obligated to reimburse the insured for defense and settlement-related expenses.
It is crucial to comprehend what is and is not covered by your D&O policy, as D&O coverage typically varies from one provider to another. For instance, some providers may exclude environmental contamination and fraud-related claims from their standard policies.
Why do nonprofits need to have D&O insurance?
Stakeholders and regulatory bodies monitor the operations of nonprofit organizations with keen eyes, looking for opportunities to sue. While directors, officers, and other leaders focus on advancing the organization’s objectives, these lawsuits may endanger their assets.
This is typically the case because directors and executives of smaller NGOs lack experience and awareness of regulations compared to those of larger organizations.
Statistics show that 63% of nonprofit organizations reported a D&O lawsuit within the preceding 10 years. Given these numbers, it is evident that D&O insurance should be considered by all charitable organizations, regardless of size or scope.
The Directors & Officers Liability Policy for Nonprofits safeguards executives of charities and their organizations from potential claims involving mistakes, omissions, carelessness, breach of duty, and other wrongful conduct. With coverage levels of up to $10 million, the D&O Policy allows nonprofits to focus on their purpose without jeopardizing everything they’ve fought for.
What coverage does Directors and Officers (D&O) insurance offer non-profit organizations?
D&O liability insurance protects individuals against lawsuits brought against them while serving as directors or officers. D&O liability insurance includes three distinct coverages known as “sides.”
- Side A: Provides individual coverage for directors and officers when the nonprofit cannot cover them.
- Side B: This provides coverage of financial assistance to the nonprofit to cover the legal fees of defending each director and officer.
- Side C: Provides entity coverage for the nonprofit for claims against it.
The following are some examples of what a D&O insurance policy offers a nonprofit organization.
Allegations of cash mismanagement
If nonprofit board members are accused of making poor financial decisions or squandering funds, they could be sued. Even if the case lacks substance, attorney expenses and court costs could drastically drain your business’s cash.
With D &O insurance, nonprofits can protect themselves against such allegations. The policy provides the needed legal representation and may also pay for damages.
Violation of regulatory standards
If your nonprofit fails to meet regulatory requirements, your board of directors could be held accountable. The D&O insurance of a nonprofit organization can help cover the cost of employing an attorney and other legal expenditures resulting from noncompliance with industry norms or laws.
Failure to perform official duties
Even while directors and officers only have a limited impact on your firm’s performance, when something goes wrong, the responsibility may land squarely on their shoulders. This policy can help cover the cost of hiring a lawyer and other expenditures if a board member is sued for failing to perform fiduciary duties or comply with legal requirements.
Lack of accommodation
Employees may sue the directors of nonprofits for lack of accommodation. This may lead to hefty fines and costly legal representation.
For instance, an employee with persistent performance issues was eventually terminated, although he claimed he was denied a reasonable accommodation due to personal stress. Unfortunately, the director did not well document the performance concerns in the employee’s personnel file, and the organization had yet to respond to the accommodation request.
The employee was generously compensated, and the dispute was vigorously fought for four years. Due to the possibility of an unfavorable jury verdict and the substantial exposure to statutory plaintiff attorney costs, the claim was negotiated to a $350,000 settlement after $230,000 in legal defense expenses were incurred.
With D&O insurance, you may cover all of these expenses.
Former employees of nonprofits can sometimes sue their directors and officers for unjust termination. Even if the court finds the directors innocent, they still have to pay for legal representation and other fees. Usually, this policy will cover legal fees and other expenses in situations like this. This is important since retaliation claims are currently for-profit and nonprofit companies’ greatest employee practice liability issue.
How much does nonprofit D&O insurance cost?
The average cost of D&O insurance for nonprofit organizations is $100 per month, or about $1,200 per year. It varies depending on the provider you choose and the number of employees that your nonprofit employs.
Below are the average costs of nonprofit D&O policies for organizations of different sizes:
|Nonprofit organization sizes||Average nonprofit D&O insurance cost|
|Organizations with no full-time employees||$50 per month|
|Organizations with less than 10 full-time employees||$100 per month|
|Organizations with up to 50 full-time employees||$417 per month|
Keep in mind that these are just the average. Your rate will be different depending on several factors that we are discussing below. Be sure to work with a few carriers to get and compare several quotes to find the cheapest one for your organization.
What factors affect the cost of D&O Insurance for nonprofits?
Some criteria, including the following, determine insurance premiums for nonprofit organizations:
The services provided by a nonprofit organization are an important metric in calculating premiums. As such, insurers typically charge more for companies that deal with services with more claims or where there is a high possibility of mishaps. For instance, nonprofits that provide psychotherapy or adopt animals may pay more for their D&O insurance.
Number of employees
As we see above, the D&O insurance cost varies significantly depending on how many employees the nonprofit organization employs. The more employees you have, the more expensive your D&O insurance policy is
Nonprofits with higher revenues are usually at higher risk of lawsuits. This is because the potential payout is larger. Therefore, insurance providers charge more for nonprofits that have higher revenues.
Business property and equipment
This may not seem obvious, but the value of your business property plays a small role in your D&o premiums. Nonprofits that work with expensive equipment tend to pay more for insurance. The more expensive your business’s equipment is, the more money your insurer has to pay to cover you in the event of issues.
In areas where litigation is very common, nonprofits might pay more for their D&O insurance. Also, if litigation costs are relatively higher in your area, you may need to pay more for your D&O insurance.
The total number of directors and officers
The more directors and officers you need to cover for this insurance, the more money you have to pay. This is because, as the number of people rises, so will the risk.
How to find cheap D&O insurance for nonprofits
The following are some ideas to help nonprofits reduce the premiums on their D&O insurance.
Understand your risks
Before purchasing directors and officers (D&O) liability coverage, nonprofits must understand the risks posed to the business and its board members. By understanding the risk, the company may purchase policies that only offer them optimal protection.
Buy an umbrella policy
An organization may purchase an umbrella policy with modified limitations. Umbrella policies typically have more than one insurance policy at a reduced price. So, after careful consideration, nonprofits may buy umbrella policies like the Business Owners Policy.
What is excluded in a D&O insurance policy for nonprofits?
You want to avoid being in a position where you face an allegation certain that you are fully protected, only to find out that your insurance does not cover the issue.
Learning what is excluded from your insurance is just as vital as knowing what it covers. However, the extent of coverage is usually determined by the provider.
In the majority of circumstances, the following instances of misconduct are excluded from most policies:
- Prior misconduct, especially before coverage begins, is usually not covered
- Instances of fraud or criminal wrongdoing
- Actions by nonprofit leaders for personal gains, such as the use of unlawfully obtained funds
We encourage conducting thorough research to avoid unpleasant shocks in the future.
Other insurance policies nonprofits may need
In addition to D&O insurance, nonprofit organizations may need a variety of insurance coverages, such as general liability, property and casualty, business interruption, workers’ compensation, professional or errors and omissions (E&O) liability, cyber liability, and employee benefits liability. Each of these policies is important to help protect a nonprofit organization from potential losses that may occur due to third-party claims or lawsuits.
- Nonprofit general liability insurance helps protect nonprofits from liability claims resulting from bodily injury or property damage caused by the actions of the organization or its employees.
- Property and Casualty coverage provides protection for physical assets owned by the organization against events such as fire, theft, windstorms and other perils.
- Business Interruption coverage can help restore operations if an unexpected event disrupts normal operations.
- Workers’ Compensation insurance helps pay for medical care and lost wages of employees injured while on the job.
- Professional liability or E&O can help protect against financial losses due to mistakes made in providing services to clients or customers.
- Cyber liability insurance helps cover expenses associated with data breaches involving confidential information about donors, clients and more.
- Employee Benefits Liability is designed to provide protection related to employee benefit programs offered by the nonprofit organization.