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American Specialty Directors & Officers Liability Insurance ProgramAmerican Specialty Directors & Officers Liability Insurance Program
   

Myths Regarding Personal Liability

The following information is offered to help you to understand exposure related to the Directors and Officers Liability coverage. It should be noted that the precise coverage afforded is subject to the terms, conditions and policy as issued.

Myth
We don't need to purchase insurance to protect our personal assets.

Reality
These are the facts:

  • Nonprofit organizations are not immune from costly litigation.
  • Nonprofit organizations are being sued more often and from more sources, despite laws in most states that limit the liability of nonprofit directors and officers.
  • Employment related suits for such things as harassment and wrongful termination are at an all-time high, especially since enactment of the Civil Rights Act of 1991 and the Americans with Disabilities Act of 1992.
  • Directors and officers are subject to the duties of diligence, obedience, and loyalty and can be sued for negligence in the performance of those duties.
  • A claim could threaten the personal assets of directors, officers, and trustees.
  • The financial burden of defending a suite against directors, officers, employees or volunteers can drain a nonprofit organization's badly needed resources.
  • Non profit organizations are often seen as "deep pockets" despite low asset levels.

Myth
I can't be held personally liable for my actions associated with this organization.

Reality
Since 1985, a number of states have enacted statutes which purport to eliminate or limit certain types of nonprofit directors and officers liability exposure. These statutes vary greatly and require close examination to determine their true benefit. None of the statutes create absolute immunity for the directors and officers. For example, none of the states impact any liability based upon a federal statute or rule. Many of the statutes expressly do not apply to a breach of the duty of loyalty, which is perhaps the most frequently asserted claim against nonprofit directors and officers. Even if a liability limitation applies, the directors and officers may still be subjected to defending the claim and funding the costs associated with that defense.

Myth
No one will sue me. I am a volunteer for a nonprofit organization. Even if a lawsuit were to arise, it will be against the Organization, not me.

Reality
History proves that directors, officers, employees and volunteers of nonprofit organizations are individually sued across the country. Suits alleging discrimination, wrongful termination, harassment, or false accreditation are not uncommon. Many claims allege gross misconduct or gross negligence, which volunteer protection statutes do not cover.

Myth
We purchase General Liability Insurance which protects me for any personal liability if I am individually sued.

Reality
General Liability Insurance can protect the assets of your organization when it is sued for doing (or not doing) something that results in bodily injury or property damage. This type of insurance does not provide protection for lawsuits brought against the directors, officers, employees or volunteers or the organization directly for failure to properly perform your duties as such.

Myth
My personal homeowners' insurance policy will provide protection for me if I am personally sued.

Reality
Although a personal homeowner's insurance policy can provide protection for lawsuits brought against you, most specifically exclude coverage for activities relating to your voluntary service or serving on the board of an organization. This exclusion would apply to any act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed or implied to be provided because of the nature of the organization.

Myth
Our organization and its directors, officers, employees and volunteers are already protected under our national associations' liability program.

Reality
Although some national associations purchase an Directors and Officers Liability Insurance Policy, it does not always extend protection to regions, local associations, or member clubs.

Myth
My organization will pay for any lawsuits brought against the directors, officers, employees, and volunteers personally, or against the organization itself. It will indemnify (cover) me if I am personally sued.

Reality
Every state by statute permits nonprofit corporations to indemnify their directors and officers against loss incurred as a result of certain types of claims. However, such indemnification does not provide protection in all instances. For example, indemnification may not be available to the director and officer for the following reasons:

  1. The organization may become insolvent or may not have sufficient resources to pay the losses and expenses incurred by the directors and officers.
  2. Either the applicable law or the corporation's internal indemnification provisions may be modified to limit or prohibit the expected indemnification.
  3. The composition or attitude of the organization's board of directors may change so that the board is no longer sympathetic to the prior officer or director and thus does not make the necessary determinations to authorize the indemnification.
  4. As a matter of policy, the organization may deem inappropriate to use contributed funds for such indemnification.
  5. Because of public policy considerations and statutory limitations, some claims may be insurable but not indemnifiable.

Directors & Officers Liability insurance can help provide protection to the directors, officers, employees, and volunteers for all of these non-indemnifiable exposures and thus can offer a more comprehensive financial protection program for these individuals.

Myth
This type of insurance is too expensive, complicated and cumbersome to purchase.

Reality
Purchasing Directors and Officers Liability insurance to protect directors, officers, employees, volunteers and the Organization itself couldn't be easier or less expensive. By simply completing a short electronic application for coverage and processing payment terms, your Organization can purchase protection for its directors, officers, employees, volunteers and the Organization itself if named in a suit. If your total gross annual receipts are less than $100,000, the total annual premium for a $1,000,000 limit of liability (which is shared by all covered parties) is only $600. This amount provides protection for all directors, officers, employees, volunteers, and the Organization.