D&O liability insurance affords protection to directors and officers from liability arising from actions connected to their corporate responsibilities. The policy provides indemnity to the directors and officers in respect of:
- Legal costs in defending proceedings brought against them alleging wrongful acts.
- Any damages awarded to the claimants against the Directors and Officers, including out of court settlements.
Relevance For Non-Profit organisations:
Non-profit directors and officers 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 organisations and their board members commonly face lawsuits from multiple acts. 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.
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