Non-profit Directors Liability

By TE Cunningham

Incorporation protects the individuals in a business who own and are operating it from many forms of potential liability. This means that persons who may want to sue the company for business issues must sue the company, not the individuals who work for the company. But what liability exists for volunteers on Boards of Directors for non-profit organizations?

While the number of people who have been sued in this capacity is not a large number, it happens. If a non-profit is incorporated, its directors, officers and members typically won’t be on the line for the non-profits liabilities, which could include unpaid bills and legal judgments. But if the organization is not incorporated the persons running the entity can be at risk, above whatever the insurance will cover. There are some state laws that offer some protection to persons who sit on a board of an unincorporated association, but it’s a risky proposition at best.

There are exceptions on the protection of directors and officers even with incorporated non-profits. How can they be held liable?

  • If the director or officer directly cause injury
  • If the individual personally guarantees a debt or loan that the corporations then defaults upon
  • If the director(s) or officer(s) fail to verify that all applicable tax returns are filed and all tax amounts owed are paid
  • If the director or officer intentional commits fraud does something illegal or makes a gross error in judgment that causes harm
  • If the director or officer embezzles from the organization or co-mingles funds

So in the litigious world, we live in, how do you give back to your community and charitable organization of choice without putting you and your family in a needless situation where you could be held liable for a situation possibly beyond your knowledge or control? Secure a Directors and Officers Insurance Policy, commonly referred to as a D & O Policy.

Bobbi Gellhaus, insurance agent, states, “A Directors & Officers policy is commonly overlooked by smaller organizations up to larger entities, however, it can be one of the most important coverages for those individuals holding a board position. Anyone can sue for anything, whether negligent or fault exists, and a Directors & Officers policy is going to not only provide coverage if found liable (and the claim is determined as insurable), but it most importantly provides defense.”

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