Back to Basics: Directors & Officers Liability and Employment Practice Liability Risk Management Tips

Directors and Officers Liability Insurance, also known as D&O, covers individuals who serve on the boards of nonprofit organizations. Individuals who serve in such areas can be held legally liable for activities that arise from the activities of the organization or the financial claims which result from their decisions. Generally, board members are responsible for the governance of the organization and can be held personally liable for decisions that fail to meet their responsibilities. D&O can be considered one of the most important coverage a nonprofit carries because it insures current and past board members and is often a requirement for potential new board members.

There are no standard policy forms for D&O coverage. Each insurer writes their own form and can have substantial differences among insurance carriers (insurers). When looking at the policy, nonprofit organizations should read the form carefully so that the scope of insurance is understood. For example, most insurers use a claims-made trigger, which insures claims that are initiated during the policy period (date of claim determines coverage not date of act), while some insure claims arising out of activities during the policy period. A nonprofit should also examine the definitions of keywords that are listed in the policy to understand the scope of coverage. For example, “insured” and “insured individuals” usually includes the board members (past, present, and future),  but some carriers also include committee members, spouses, volunteers, and legal representatives.

Many insurance carriers that write D&O for nonprofits will also include Employment Practice Liability (EPLI). The most common types of Employment Practice Liability claims are the following: sexual harassment, racial and gender discrimination, defamation, failure to accommodate, and improper employee classification. Claims for improper employee classification has been on the rise. Some carriers will provide defense for improper employee classification but back pay or penalties owed to the employee are not covered by any D&O policy form (wage and hour issues).

Board Members and Nonprofits should consider the following to help protect themselves against Employment Practices Liability claims:

• Make sure that Employee handbooks are in compliance with the law and that the company strictly adheres to the policies stated in the handbook.
• Open communication with employees and make sure that all supervisors are adequately trained
• Adopt anti-discrimination and anti-harassment policies and make sure that employees understand that such behavior will not be tolerated.
  • If there is a complaint, make sure the organization does a thorough investigation promptly and takes the appropriate action.
• Be sure that employees are classified correctly
  • Exempt vs. Nonexempt
  • Independent contractors

This is not an exhaustive list of what board members and Nonprofit administrators should consider in regards to risk management. Consult with your HR representative and/or Employment attorney to check if handbooks are in compliance and if there are other risks that the organization needs to address.

If you have questions regarding Directors and Officers Liability or would like a quote, please contact us. We are here to help.

*This is article is for informational purposes and not to be construed as legal advice.