Originally posted on hubinternational.com
The last several years have been challenging for nonprofit organizations, as they’ve battled increased instances of fraud and employment-related difficulties while struggling to balance budgets in an economy squeezed by a global pandemic. These circumstances have forced many to reevaluate their nonprofit risk and insurance strategies.
It’s important for those who operate in the nonprofit sector to understand organizational and personal risk. As active decision-makers, board members may assume liability for asset management, grantmaking, compliance, employment-related offences and other activities. But few standard insurance products for individuals protect individuals from liability when serving on nonprofit boards.
What prospective board members need to know
Nonprofit leaders have the same responsibilities as their counterparts serving for-profit enterprises. As a result, prospective nonprofit board members should take the following three things into consideration before accepting a seat on any nonprofit board:
- As leaders, board members make decisions and act on behalf of the organization. Organizations are inanimate entities, functioning at the direction of individual leaders, who have individual opinions and judgment. Despite the best intentions, people can and do make mistakes, sometimes causing harm for which others seek legal redress. And in these instances, they can be held personally accountable.
- Board members have fiduciary obligations of obedience, loyalty and diligence. Candidates must understand and abide by their fiduciary responsibilities through the following: Obedience to organizational by-laws and other laws and regulations; loyalty to the interests of the organization over self; and diligence when performing board duties such as preparing for meetings, making decisions and acting on the organization’s behalf. Board members can generally be held personally liable for breach of fiduciary duties.
- Volunteer immunity, where it exists, isn’t guaranteed. In cases of egregious neglect or misconduct, the shield of volunteer immunity can be pierced in court. Immunity is a legislative creation and is always subject to change and repeal. State nonprofit corporation law generally specifies when leadership actions cross the line into misconduct and can trigger personal liability.
Nonprofit Management Liability coverage protects the organization’s board members against civil liability for harmful consequences arising from the general management of the business. This could include employment-related offences and wrongful acts as fiduciaries of group health and welfare plans.
Nonprofit Management Liability insurance takes several forms, and no two policies are built alike. It’s also important not only to understand the scope of insurance protection but how to use it without running afoul of specific policy requirements, such as claim notification and engagement of defence counsel.
A skilled nonprofit risk advisor can help develop a management liability program best suited to an organization’s risk profile and treasury.
Contact your HUB International Nonprofit expert for more information on securing the right coverages for your nonprofit organization and those who serve it.
