Wrongful termination lawsuits have grown by more than 260% in the past 20 years!
We are living in an era where corporations, non-profit and for-profit alike, are at an increased risk of being hit with a lawsuit. According to a survey taken by Wills Towers Watson, 6% of non-profit organizations have reported a Directors and Officer’s (D & O) Claim in the past ten years. The directors of non-profits are under significant legal scrutiny. The legal standards for directors of non-profits are high concerning their fiduciary and legal responsibilities for the organization. Lawsuits may come from outside the organization (vendors/third parties) or originate from an internal dispute. Approximately 85% of claims filed against non-profits are employment-related, including hiring practices, firing practices, and discrimination, among other things.
Costs associated with D&O-related legal action can be costly and are often more than a non-profit can afford. The legal fees alone can put a non-profit out of business. Because of the risks associated with running a non-profit, directors should consider obtaining Directors and Officers liability coverage. It is important to note that not all D&O policies are created equal. Depending on the carrier, D&O coverage can be part of a packaged policy with other coverages such as Employment Liability Insurance and Fiduciary Liability or D&O can be a stand-alone policy.
Employment Practice Liability Insurance (EPLI) covers claims alleging “wrongful acts” related to employment. Most commonly reported claims are: wrongful termination, sexual harassment, discrimination, and retaliation.
Fiduciary Liability covers an employer’s exposure related to the management of employee benefit programs.
There are essential factors to take into consideration choosing a D&O policy, such as:
- Liability limits: Represents the total amount the insurance company will cover. Policies can be written with “shared limits” (i.e. D&O and EPLI share one set of limits) or separate limits. Depending on whether the limits are “shared” or separate, you may need to consider increasing your limits.
- Defense and Costs Limits: Some carriers subtract the defense costs from the stated limit in the policy, lowering the total limit available, other carriers offer defense costs in addition to the stated limit of liability
- Claims-made policies vs. occurrence policies (Most D&O Policies in CA are claims made):
- Claims-made policies: apply when a lawsuit is filed
- Occurrence Policies: pay claims based on the date of the occurrence itself. This distinction is significant to consider when choosing a policy.
- Wage and Hour Defense: In California, most EPLI policies do not cover wage and hour claims but some provide a sublimit for defense coverage
- Third-Pary Harassment: Does your EPLI policy address third-party harassment issues?
- Hammer Clause: (also known as “consent to settle clause”) allows an insurer to compel the insured (policyholder) to settle a claim.
We recommend that you review your insurance coverages with your attorney to ensure that your organization and board members are adequately protected. Let us know if you have any questions or concerns regarding Directors and Officers Liability Coverage or if you would like us to provide you with a quote. We are here to help!
*This article is intended to be used for informational purposes only and not to be construed as legal advice.