| Directors & Officers and Employment Practices Liability for Non Profit Organizations |
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AS A
DIRECTOR OR
OFFICER OF A
NON PROFIT
ORGANIZATION,
ARE YOU IMMUNE FROM
LIABILITY?
_
Immunity does not prevent an organization from being sued
_
Immunity typically applies to volunteers, not to paid employees or the organization
itself
_
Employment-related laws are the same for any type of organization
_
Over 90% of the claims against Non Profit organizations are Employment Practices-related
_
These Employment Practices claims may include Wrongful Termination, Third Party
Sexual Harassment, and Third Party
Discrimination
_
Nearly 85% of Non Profits have an annual budget that is less than the average cost
to defend a claim closed by litigation
Eligible organizations:
Why you should purchase
Non Profit Directors & Officers and Employment Practices Liability Policy:
The following are
important coverages to have in your policy. Make sure you have all of these features
PACKAGE
COVERAGES
AVAILABLE:
_
Separate Limits of Liability for Directors & Officers and
Employment Practices Liability claims
_
Defense outside the limit
_
Third Party Sexual Harassment and Discrimination coverage
_
Unlimited Extended Reporting Period for Former
Directors & Officers
_
Optional Fiduciary Liability coverage extension
_
Outside Directorship Liability coverage
_
Defense and Settlement Provision (Hammer clause)
50/50 split
_
Coverage for both monetary and non-monetary
claims included
_
Free human resources consultation HELPLINE service with
unlimited calls and no time limits
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50% discount on PeopleSystems online Sexual Harassment
Prevention Training
Blue - denotes newly expanded eligibility
ADDITIONAL
ADVANTAGES:
_
A.M. Best rated A++ carrier
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Quick quote turnaround
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Quick binder confirmation
Claim Examples
for Non Profit Directors & Officers
_
A club secretary
sued the country club's governing board, alleging
that the directors and officers were negligent for
failing to supervise the club manager, who she claimed
sexually harassed her.
_
The trustees of a
charitable organization decided to expand their activities
into areas that were not explicitly envisioned
by the founders. Soon after, their state's attorney general
brought an action against them
alleging misuse of funds
and property for operating
outside their charter, even
though no third party raised a complaint.
_
A YMCA advertised
an open position for a camp counselor. The organization
received seven applications. Of the seven applicants,
one man was not chosen to be interviewed. This
applicant alleged he was not interviewed because of his age,
and he filed suit against the non profit organization
for age
discrimination. The organization denied any wrongdoing
but settled the case for $15,000 to avoid full litigation
costs.
_
A lawsuit was brought
against a non profit board of trustees for
failing to supervise
the executive director. When they
submitted their legal bill to their D&O
carrier, they learned for
the first time that
no payments would be made until a settlement
had been reached. Legal costs piled up until a
settlement was reached, five years later. The prohibitive
costs caused the organization to close its
doors forever.
_
A donor made a large
contribution to a non profit. The funds were to
be used primarily to aid impoverished children with
educational and health care needs. Instead, the non profit,
through its executive director and board of
trustees, decided that they needed to
expand the building and committed a portion
of the donation to the building fund. The donor filed
suit,
alleging misappropriation of funds. The damages
included return of the full contribution plus
interest. As some of the money was already
spent, the non profit would be financially
unable to return the entire donation.
_
The
personal assets of the
directors and officers
of a non
profit organization were exposed when the
organization ran out of funds to pay
for a suit brought against it.
_
Representatives of
a non profit organization become involved in
attempts to influence
legislation beneficial to the
institution. Claims were presented
challenging the organization’s tax-exempt
status under S501 (c) 3. An
injunction was sought
to prevent the organization from
engaging in such legislative activity.
_
An officer served
a term on the board of directors of her church.
Eighteen months after completing her service, she
was named in a suit alleging mismanagement of church
funds for the last five years. The ex-officer
discovered that the current board had
failed to renew its insurance
policy, so even
though she had diligently maintained insurance
coverage throughout her term of service, the former officer
was left with no coverage for this suit.
Duties and Responsibilities of Non Profit
Directors and Officers
Non Profit Directors and Officers
are legally responsible for the day-to-day decision-making of their organization.
These board members can
be held personally liable for any breach of duty.
THE
DUTIES OWED BY DIRECTORS AND
OFFICERS
INCLUDE THE RESPONSIBILITY THAT IS OWED TO THE ORGANIZATION
ITSELF,
ITS MEMBERS,
EMPLOYEES AND THE GENERAL PUBLIC. THE
DIRECTORS
OWE THREE SPECIFIC DUTIES:
THE DUTY OF
CARE,
THE DUTY OF LOYALTY AND THE DUTY OF
OBEDIENCE.
_
Duty of Care – requires Directors and Officers to act prudently and reasonably in
regard to the management of the
organization’s affairs.
_
Duty of Loyalty – prohibits Directors and Officers from using their position in
the organization to further their own
personal interest _ Duty of Obedience – requires Directors and Officers to ensure that the organization is run in accordance with it’s charter and bylaws, and that the organization complies with applicable laws
IN ADDITION TO THESE DUTIES, DIRECTORS
AND OFFICERS
HAVE SOME BASIC RESPONSIBILITIES THAT INCLUDE
THE FOLLOWING:
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Establish a mission and purpose for the organization and articulate goals
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Select a chief executive and establish his or her responsibilities
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Ensure effective organizational planning, establish programs and services consistent
with the organization’s mission and assist in
implementing and monitoring the plan’s goals
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Ensure adequate resources so that the organization may fulfill its mission
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Provide financial oversight and assist in developing an annual budget and ensuring
that proper financial controls are in place
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Ensure legal and ethical integrity and maintain accountability for adherence to
legal standards and ethical practices
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Establish procedures to ensure that each board member understands and complies with
his or her duties as a board member
_
Serve as an advocate for the organization and enhance their public standing
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Support the chief executive and assess his or her performance and monitor the conduct
of the staff to ensure the
organization is being properly managed
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Recruit and orient new board members and assess board performance
Non Profit Directors and Officers
must always act for the benefit of their organization, avoid any conflicts of interest
and exercise the
utmost skill
and care in decision-making. Any perceived breach of these duties can result in
a suit that will at the very least incur
defense costs. You could be sued by employees, members, volunteers and donors. If your board does not carry Directors and Officers Liability Insurance the personal assets of each individual board member may be at risk!
Frequently Asked Questions by Non Profit
Organizations
Too many conversations about Non Profit
Directors and Officers Insurance deal directly with complex coverage issues – fundamental
questions may be overlooked. Here’s
an opportunity to get answers to some of those basic questions...
WHY
DO I
NEED THIS COVERAGE?
_
Non Profit Directors and Officers are legally responsible for the day-to-day decision-making
of their organization.
Corporate responsibility applies to Non Profits just as it does to For Profit organizations.
Whether publicly traded, privately held, or
non profit, Directors and Officers can be held personally liable for any breach
of duty. Our product is tailored to safeguard against
the exposures Non Profit Directors
and Officers face.
WHAT
CAN I
LOSE?
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A board member’s personal assets may be at stake in a claim: Retirement savings,
investments, a home – even one held in a
spouse’s name – could be at risk. Our Non Profit Directors and Officers Insurance
can protect an individual director or officer’s
personal possessions against high-priced
litigation and settlements.
WHAT
WOULD I
BE SUED FOR?
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Ever have to fire someone? Organizations are now more likely to be sued for discrimination,
harassment, or wrongful termination
than to suffer a general liability or property loss. In addition, Directors and
Officers must always act for the benefit of their organization,
avoid any conflicts of interest, and
exercise the utmost skill and care in decision-making. Any perceived breach of these
duties can result in a suit that will
at the very least incur defense costs. Our product offers separate limits of liability
for Directors and Officers
and Employment Practices Liability claims as well as defense costs outside the limit
of liability.
WHO
IS GOING TO SUE ME?
_
Employees, members, volunteers and donors. These are just a few of the parties who
may bring suit against a Non Profit
Organization. Even if a director or officer hasn’t done anything wrong, lawsuits
must still be answered and defense can be costly.
Nearly 85% of Non Profits have an
annual budget that is less than the average cost to defend a claim closed through
litigation. Can a small
organization afford to defend itself and indemnify its leadership without Non Profit
Directors and Officers Insurance?
COULD
THIS REALLY HAPPEN TO ME? _ It may only take one suit to shut down a Non Profit Organization forever. In today’s litigious society, defense costs alone can cripple even the most financially stable entity. With the confidence and security of our Non Profit Directors and Officers policy in place, an organization can concentrate on its mission.
What is a Non Profit Organization?
Non Profit Directors and Officers
are legally responsible for the day-to-day decision-making of their organization.
These board members can
be held personally liable for any breach of duty.
WHAT
IS A NON
PROFIT
ORGANIZATION?
_
A Non Profit Organization is defined as an organization founded to provide a socially
desirable service with no intention to return
financial benefits to its members. To meet this criteria, an organization must establish
that is it not organized or operated for the
benefit of private interests. Unlike for profit groups, non profits, including all
charities, are not allowed to have shareholders with
whom to share profits. In case of
uncertainty, the general rule is that an organization’s charter (for profit vs.
non profit) is determined
by the authority it may exercise under that charter. Additionally, what an organization
actually does is of more
importance in determining its status than what it professes to be.
_
One of the benefits to being a non profit organization is a tax-exempt status. Non
profits are organized under Section 501 (c) of
the Internal Revenue Code. These organizations are exempt from federal, and usually
state corporate taxes, if the proper rules
and regulations are followed. There are several sub-groupings under section 501(c)
that address a variety of charitable and
social service organizations.
_
Many 501 (c) organizations must file a FORM 990 – Return of Organization Exempt
From Income Tax Form with the IRS in order
to maintain tax exempt status. There are exceptions to this rule that include churches
as well as organizations with total revenues
less than $25,000. (Form 990 may often be a good underwriting tool to help distinguish
non profit groups from for
profit organizations).
SEGMENTS
OF NON
PROFITS
There are three (3) distinct types
of Non Profit Corporations:
1.
The Public Benefit Corporation
Formed for public or charitable purposes
to benefit the general segment of society. These non profits usually have no members
thus the Directors and Officers generally
are seen as serving the public as a matter of trust.
2.
Charities and Social Service Groups
Most charities are non profit organizations.
Special exposures for charities include the failure of a fundraising event which
can result in claims filed against the
charity by individuals who gave grants or money.
•
Examples of Social Service Groups/Charities: Civic Groups, Social Welfare Organizations,
Foundations
3.
Education
Schools are usually administered by
a board of governors/trustees comprised of teachers and external individuals, such
as parents. If a fee-paying school
goes out of business, the board may be at risk not only from creditors and banks
but also from parents who may sue
for the return of fees and tuition. Additionally, potential risks include claims
regarding damage to children’s
education.
•
Examples of Educational Organizations: Day Cares,
Who Sues Non Profit Organizations and
their
Directors and Officers?
DONORS
- CLAIMS
RESULTING FROM THOSE WHO MAKE DONATIONS TO THE ORGANIZATION
_
The Board of Directors of a church was sued by a number of their donors, alleging
misrepresentation of the financial status of
the organization. Three members brought separate suits for repayment of the money
lent to the church. The first case settled for
$240,000 of which $117,000 accounted
for expense. The second case settled for $75,000 and incurred $86,000 in defense
costs. The last case
paid nothing to the claimant, but incurred $13,000 in defense costs. The total loss
including defense costs exceeded
$530,000.
THIRD
PARTIES
- THIRD
PARTY
LAWSUITS
CAN BE FILED FOR VARIOUS REASONS
_
An organization filed a suit against a foundation and it’s Board of Directors for
improperly infringing upon the claimants intellectual
property rights. The claimant filed
suit seeking injunctive and monetary relief for the Foundation’s alleged improper
use of trademarked
property while promoting their fundraiser. The claim settled and the total loss
including defense was over $400,000. EMPLOYEES – THE MOST COMMON CLAIMS MADE BY EMPLOYEES INVOLVE DISCRIMINATION, HARASSMENT, WRONGFUL TERMINATION, RETALIATION AND HOSTILE WORK ENVIRONMENT
DISCRIMINATION
•
After ten years of employment, an employee was fired for poor work performance.
This employee brought a discrimination
suit against their employer under the Americans with Disabilities Act (ADA). The
individual alleged lack of work place
accommodation and constructive discharge. The claim was closed for a total loss
of over $80,000, including more than
$20,000 in defense costs.
SEXUAL
HARASSMENT
•
After ten years of employment, an employee was fired for poor work performance.
This employee brought a discrimination suit
against their employer under the Americans with Disabilities Act (ADA). The individual
alleged lack of work place
accommodation and constructive discharge. The claim was closed for a total loss
of over $80,000, including more than
$20,000 in defense costs.
RETALIATION
•
A former employee discovered illegal transactions involving retirement funds. Shortly
after reporting the violations, she was
terminated by her employer. She filed suit alleging retaliation and wrongful termination.
The total loss exceeded $100,000 with
the settlement figure over $80,000.
GOVERNMENTAL
AGENCIES
- CLAIMS
DUE TO VIOLATIONS OF THE LAW
_
The United States Department of Justice brought suit, alleging misappropriation
of funds and failure to revert unused money back
to the government. The insured received federal grant money and allegedly used leftover
grant money to renovate office space
instead of return it to the government. The case closed for a total loss of over
$60,000, including $21,000 for defense costs.
Why To Buy Directors and Officers Coverage
For Non Profit Organizations
_
Non Profit Director and Officer boards can be sued by donors,
employees (prospective, current or
former), the general public,
third parties, clients, and/or government agencies.
_
The personal assets of the individual board members are at
stake! Directors & Officers (D&O)
insurance can help protect a
board member’s home, investments, or other personal assets.
_
The bylaws of the Non Profit may indemnify the Board but does
not guarantee the entity has the resources
to fund the cost of a
claim. The financial backing of a Directors & Officers policy will
ensure financial solvency to the organization.
_
Directors and Officers lawsuits can have a devastating impact on
the operating budget of the Non Profit
organization, and can even
put the entity out of business.
_
The average cost of a Directors and Officers policy is often under
$1,000 with a zero retention yet the
average cost of a claim is
over $100,000.
_
Directors and Officers claims are not covered under General
Liability or any other policy form.
_
Corporate scandals have heightened regulation of accounting
practices. The Sarbanes-Oxley Act
has also impacted
Non Profits.
_
The Internal Revenue Service has increased their scrutiny of
Non Profits. Over 400 private foundations
have been audited in
the past
year.
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Directors of Non Profit boards have the same fiduciary duties as
corporate board members. Non Profit
Directors and Officers
lawsuits may involve a variety of issues related to the daily
operations of the board including:
Why To Buy Employment Practices Liability
For Non Profit Organizations
_
Employment Practices Liability covers not only actual but
alleged acts of discrimination, harassment,
retaliation and
wrongful
termination.
_
Employment lawsuits can be brought by employees as well
as volunteers or third parties.
_
The average cost to defend an employment claim is
$150,000. The financial ramifications of not having
Employment Practices Liability Insurance
can be crippling to
the operations
of a small non profit.
_
Non Profits are not protected under Commercial General
Liability for employment lawsuits.
Endorsements to a General
Liability form for such coverage are generally
inadequate and erode limits of liability.
_
An employer is more likely to have an employment claim than
a General Liability or Property claim.
Six out of ten companies have
been named in a discrimination or
harassment lawsuit in the past five (5) years.
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Recent Supreme Court rulings have held that employees
may win discrimination suits without
direct evidence of an
employer’s illegal intent.
_
Age discrimination lawsuits continue to be on the rise as the
baby boomer generation ages and remains
in the workforce.
_
The 1991 amendments to the Civil Rights Act give
employees the ability to seek jury trials, damages for mental
anguish and emotional distress, and
obtain punitive damage
awards.
_
Three out of five former employees sue their employers
every year.
_
Approximately 550 employment lawsuits are filed every day
in the
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