Provides personal financial protection for Directors & Officers against liabilities imposed while performing their duties. Protection is provided against Alleged Wrongful Acts described as:
"any error, misstatement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted, by an insured, individually or otherwise, in their insured capacity."
Similar to General Liability, Nonprofit D & O covers liabilities except those specifically excluded (See Exclusions)
- Note: General Liability covers third party bodily injury and property damage only
- D & O Liability covers Wrongful Acts ( "wrongful management decisions"), but excluding bodily injury and property damage
D & O Common Exclusions
Policy Exclusions exist to:
- Eliminate uninsurable loss exposures: Those not accidental, or predictable, within the control of the insured, catastrophic
- Manage moral and morale hazards Intentional acts, Loss caused by undue care and attention
- Avoid coverage duplication: Other insurance is available
- Eliminate coverage for extreme risks – Those requiring special treatment
- Keep premiums at a reasonable level – No policy can or will insure everything
Liability arising out of:
- Bodily Injury and Property Damage
- Theft, Criminal acts, Deliberately fraudulent acts
- Pollution, Nuclear reaction or radiation
- Claims prior to the inception date of the policy
D & O Claims
Financial/Third Party:
- Misallocation of Funds, Breach of Fiduciary Responsibilities
- Self Dealing / Conflict of Interest
- Third Party Discrimination, Defamation, or Invasion of Privacy
- Failure to Maintain Insurance
- Interference with Contract, Breach of Contract
- Failure to Accredit or Certify
- Infringement of Trademark, Patent or Copyright
Employment Claims:
- Wrongful Termination, Breach of Employment Contract
- Discriminatory Hiring Practices, Failure to Promote
- Negligent Evaluation
- Failure to Grant Tenure
- Retaliation
- Wrongful Discipline, Sexual Harassment
- Invasion of Privacy, Employment Related Defamation
- Employment Related Infliction of Emotional Distress
Extend Coverage?
- To indemnify the corporation itself where it has responsibility apart from the directors and officers not all policies automatically cover the "entity"
- To protect directors or officers who serve at on other boards (outside D & O)
- To protect other employees that are sued for alleged wrongful acts in addition to the directors and officers and the entity
Buying any form of "claims -made" coverage or changing insurers:
- include "full prior acts " coverage or set the retroactive date as the inception date of your original policy.
- Knowledge of any "incidents " that may lead to a claim must be indicated on any application or renewal form by the applicant.
- If you note any such incidents on an application for a new carrier, ensure the "incidents" are reported to your current carrier.
Claims-Made Insurance
- Coverage applies only where claims are brought against the director or officer during the policy period
- "Claims-made" refers to a demand made by a third party against an officer or director for moneys by virtue of a wrongful act
- Insurers require that the demand be an overt communication stating an intention by the third party to hold the director or officer liable
- Not necessary that a lawsuit be commenced
- Must be indication that another party intends to hold the directors and officers responsible for the consequences of some wrongful act
Professional Liability
To be covered, the claims must arise from the insured’s position as an officer or director. A coverage problem could arise where the insured holds more than one position with the insured organization. For example, where the insured is both a member of the Board of Directors and the corporate solicitor, any claims associated with the latter position will be not be covered by the D & O policy, as they are the subject of professional liability insurance.
D & O Coverage
The policy should extend to all past and present directors, officers and committee members of the corporation.
Directors and officers insurance policies are issued on a “claims made basis.”
This means that the nonprofit must notify the insurer before the termination of the policy period of any possible or potential claims that the directors and officers of the corporation may be aware of – if they want it defended by the insurer.
Provision that notice of cancellation be directed not only to the nonprofit, but also to the chair of the board of directors, which ensures that the board is notified of any intended cancellation of the policy.
Defence costs should be provided exclusive of the limit of liability.
If possible, the method of payment by the insurer should be described as "to pay on behalf of" (or similar statement – Advance of Payments) otherwise policies providing "indemnity" means the nonprofit
