There is a misconception in the industry that a D&O insurance policy is applicable to only companies, private and public. The reality is, the policy has more extensive application. Even an NGO can buy the insurance policy and get its benefits. Before knowing the list of benefits, it is vital to be aware of few other aspects in this context.
The growth of NGOs
In recent years, India has witnessed a sharp growth of NGOs. NGOs are meant to make society a better place through a series of activities. They generally work for the needy.
Providing a corporate touch
The D&O insurance policy markedly provides a corporate touch to the functioning of an NGO. So, if an NGO aims to integrate a corporate approach in its operations, making its profile more sophisticated and professionally attractive, then buying a D&O insurance policy from a top service provider is a great idea.
Directors & Officers Liability for Non-Profit organisations:
Although Directors’ and Officers’ liability insurance (D&O) often is associated with large for-profit companies, they are not the only ones that need it. Many people hold the common misperception that directors (including trustees) and officers of a nonprofit organization do not have a meaningful exposure to personal liability. The reality of today’s tenuous legal environment is quite the opposite.
Regardless of organisational structure, directors and officers of all nonprofit organizations share certain common responsibilities which, if not properly discharged, may give rise to personal liability.
Function of nonprofit directors
The primary role of nonprofit directors and officers is to maintain financial stability and provide the necessary resources and environment to accomplish the goals and purposes of the organization. The unique nature of nonprofit organizations presents directors and officers with difficult challenges in performing this role.
Need for D&O insurance:
Non-profit directors and officers may have an even more demanding job than their for-profit counterparts, because of the following:
- Affairs of the organization may be less familiar to the individual and may be conducted under less efficient conditions than in business corporations.
- The applicable legal standards of conduct for nonprofit directors and officers are at least as high, and perhaps higher, than the standards applicable to their for-profit counterparts.
- Damages recoverable from directors and officers of even a relatively small nonprofit organization can easily exceed the net worth of many individuals.
- Many for-profit corporations are subject to external forces, which tend to monitor corporate performance and dictate standards of behaviour.
- Reporting requirements and oversight by regulatory agencies also serve to identify and guide for-profit corporate performance and behaviour. These external forces are largely absent for nonprofit organizations. Accordingly, nonprofit directors and officers must implement their own internal information system and performance criteria in order to timely and effectively evaluate the progress of the organisation and the abilities of its management.
- Because nonprofit directors and officers are frequently subjected to less external scrutiny than their for-profit counterparts, a greater tendency may exist to become complacent, reactive and perhaps careless in the fulfilment of their fiduciary role.
In addition, the resources of many nonprofit organizations are insufficient to provide directors and officers with the most desirable support. As a result, decision-making may be hindered by incomplete information, insufficient time and inability to carefully investigate and document relevant factors.
In today’s litigious society, nonprofit organizations and their board members commonly face lawsuits for an extended list of alleged wrongdoings: Discrimination (age, race, sex, employment, membership), Harassment, Wrongful termination of employees, Inefficient administration or supervision, Waste of assets, Misleading reports or other misrepresentations, Libel and slander, Failure to deliver services, Acts beyond the granted authority.
D&O liability insurance has become a much more common item on the nonprofit agenda for the simple reason that more nonprofits are getting sued.
There are directors even in NGOs
Even NGOs have their directors. Public and private companies are not the only entities who have directors. An NGO can have a single director or multiple directors. It depends on the policies of the management responsible to run the operations of the NGO.
D&O is meant for the directors/officers of the NGO
Without any speck of doubt, the D&O insurance policy is meant for the directors/officers of the NGO. The directors/officers of the NGO are direct beneficiaries of the insurance policy. Again, an NGO may have a single officer or many officers.
The insurance policy has certain clauses
Keep in mind that there are some well-defined clauses of the D&O insurance, clearly mentioned in the policy document. One needs to seriously go through the details of the clauses before deciding to buy the D&O insurance from a service provider.
Terms and conditions are different from clauses
Keep in mind that the terms and conditions of the D&O insurance policy are completely different from its clauses. They have different perspectives. So, when an NGO intends to buy the insurance, it needs to focus on the differences, and judge accordingly.
Understand the specific need of your NGO
It is highly important to understand the specific need of your NGO when you plan to recommend it to the entity. The benefits, rather the beneficial features of the D&O insurance policy should match with the essence of the NGO and its long-term objectives.
Knowing about the coverage
It is also extremely crucial to know about the coverage of the D&O insurance policy. The document will contain the relevant details. Still, it is always better to double-check. Enquire with the insurer about the various aspects of the coverage before making a final decision on this matter.
Choosing a reliable broker
The NGO must select a reliable broker to get hold of the most suitable D&O insurance policy. It is crucial to enquire the details of certification. The broker should have validation from IRDAI. Moreover, it should have good online reviews. One must check out these things.
PlanCover has excellent goodwill in the Indian market as a top-notch insurance broker. As a representative of an NGO, you can consult with them regarding various functional features and benefits of a D&O insurance policy. The agency explains every point clearly.
Benefit 1: Reimbursement of the legal expenses
It is the main benefit of the D&O policy for an NGO. When the directors/officers of the NGO face lawsuits, they need to hire an attorney and take care of other miscellaneous legal costs. The insurance takes care of these expenses, effectively.
The lawsuit can put an allegation on the directors/officers of the NGO of wrongful activities or financial mismanagement. Moreover, an individual or an entity can file the lawsuit without any warning. In such situations, the D&O policy plays a major role to reimburse the legal expenses on behalf of the insured.
Benefit 2: Protection of the assets of the NGO
The coverage provided by the D&O insurance policy is not only limited to its directors/officers. The policy even has provisions to cover the assets of the NGO. Its scope is extensive. The coverage of legal costs help the NGO to keep its assets shielded.
When a lawsuit names the NGO as a perpetrator of an alleged injustice, then entity has to legally battle against the allegation. Hiring an experienced attorney is the right step. The D&O insurance policy takes into account the recurring legal expenses on behalf of the NGO.
Benefit 3: Flexibility in coverage limits
Another crucial benefit for an NGO is it gets ample relaxation in availing the coverage from a top insurer. There is flexibility in the coverage limits of the insurance policy. The NGO does not have to worry about the coverage as a reliable insurer takes care of the various administrative details.
Also, if the NGO is well-established and operates at a huge scale, the limit of coverage can be huge. It can reach a considerable value, from a practical point of view. The management of the NGO should talk to the insurance experts in this regard.
Benefit 4: Protection beyond the indemnification
Yet another amazing advantage that an NGO can get by buying a D&O policy from a top-rated broker is its capacity to protect the directors/officers of the entity, beyond the procedure of indemnification. The policy document of the insurance has the details of the applicability.
While fighting lawsuits, there are times when NGO indemnifies its directors/officers. When the NGO is insolvent, it becomes impossible for it to pay the legal expenses. It is unable to cover the costs. The D&O insurance policy, in such cases, effectively covers the legal and related expenses.
Get your doubts cleared
Do not hesitate to ask questions to the insurer about various aspects of the D&O insurance policy. When you have the responsibility to recommend it to an NGO, you must be aware of its various dimensions of applicability. Gather as much information as possible by asking questions to the service provider.