Directors & officers have distinctive protection needs

While individuals of a nonprofit organization’s volunteer board of directors can be held personally responsible for their wrongful acts, they do have some protections against lawsuits. Generally, a nonprofit will provide compensation for harm or loss to its directors and officers, subject to state law.

Immunity. By law, nonprofit volunteers will not be personally liable for harm if they acted within the scope of their volunteer responsibilities, they were licensed properly, certified or authorized for the activity, which caused the harm (if required or appropriate), and they did not cause harm: 1. by the willful or criminal misconduct, or gross negligence, etc.; or 2. while operating a vehicle for which they were licensed and had the proper insurance. However, if a volunteer commits a crime, this immunity will be forfeited.

Personal insurance. Volunteers’ personal auto, homeowners and umbrella policies can offer some protection. The auto policy will respond to accidents during volunteer activities. The typical homeowners liability and umbrella coverages will respond to bodily injury and property damage suits. If personal injury coverage is added, there may be protection for suits involving offenses like libel, slander, and invasion of privacy. [NOTE: The definition of personal liability would have to be amended to include personal injury perils (e.g., libel and slander) in the homeowners policy.] However, there is no personal coverage for wrongful-acts claims—additional coverage is needed.

Nonprofit insurance. The nonprofit corporation should have general liability insurance because most personal policies exclude coverage for business activities. A nonprofit D&O policy would:

• pay directors and officers for losses that are not indemnified by the corporation,
• reimburse the corporation for the indemnification of its directors and officers, and
• reimburse the corporation for loss arising from its own direct liability.

The law does not protect a corporation from legal liability and the volunteers may have to establish their immunity by means of legal defense.

Since most lawsuits against nonprofit corporations involve employment matters, the purchase of employment practices liability coverage is essential. This should include third-party coverage for sexual harassment and discrimination against others by acts of volunteers and staff.