A nonprofit organization in operated for the benefit of some group of persons. Those individuals, together with employees, creditors, customers, members, state regulators, etc. are all potential plaintiffs against directors & officers of nonprofit organizations due to mismanagement. The fundamental responsibility of directors & officers is to judiciously represent the interests of the organization’s members and other constituencies in directing the business and affairs of the organization with in the law.

D&O insurance responds to protect an organization for the insured perils surrounding an allegation of a wrongful act. An important feature of a D&O insurance policy is defense costs coverage. The costs associated with defending an allegation of a wrongful act can easily and quickly exceed $50,000.

EXAMPLE CLAIM EXPOSURES FOR DIRECTORS, OFFICERS, OR TRUSTEES

Allegation of Wrongful Acts

· Conflict of interests

· Fraudulent conduct, reports, financial statements or certificates

· Breach of contract

· Torts

· Violation of statute

· Violation of provisions of articles or by-laws

· Improper self-dealing

· Acquiescence in conduct of fellow directors engaged in improper self-dealing

· Transactions with companies in which officers or directors are personally interested

Allegation of Financial Mismanagement

· Inefficient administration resulting in losses

· Sale of assets for unreasonably low prices

· Wasting of assets

· Extension of credit where not warranted

· Failure to ascertain whether extension of credit is warranted

Allegation of Mistakes or Errors in Judgment

· Disclosure of material facts

· False or misleading reports

· Dissemination of false or misleading information

· Permitting organization to make improper guarantees

Allegation of Negligence

· Continual absence from meetings

· Failure to examine reports and documents before sighing

· Failure to detect and stop embezzlement of organizational funds

· Failure to file annual report

· Failure to require withholding tax

· Failure to inspect organization books and records to keep abreast of its activities

· Failure to supervise the activities of others in a proper manner

· Failure to verify facts in official documents before signing them and filing them

· Shirking responsibility

If your organization has exposure to any of the items as identified, it is strongly recommended that Directors & Officers' insurance coverage be secured.