Why Nonprofits Need Directors & Officers Liability
A nonprofit’s entire staff is essential to its success. Whether it’s the Executive Director, CFO, a salaried manager, a volunteer mentor for children, or a member of the board of directors, each helps ensure the organization achieves its goals and its mission in best serving the community.
The officers at nonprofits are often surprised to learn they are vulnerable to mismanagement lawsuits brought by third parties. These types of lawsuits are expensive to defend, and can result in serious financial loss and damage to the nonprofit’s reputation.
Mismanagement Allegation Examples:
- Unfair employment practices
- Mismanagement of the organization’s assets
- Inefficient administration
- Violations of bylaws
- Conflicts of interest
- Improper self-dealing
- False or misleading reports
- Continual absence from meetings
- Failure to file annual report
- Failure to detect embezzlement of funds
D&O insurance helps protect the nonprofit entity and its current and past staff members, volunteers, directors, officers, and trustees from these types of allegations—and more.
Directors & Officers Liability Program Highlights
The primary function of this D&O Liability is to help protect Girl Scout council management from litigation alleging negligence in the performance of their duties. It’s not just management that’s covered under the policy though – directors, officers, trustees, employees, volunteers, and committee members are all named insureds.
The Aon Affinity Nonprofits policy underwritten by Great American includes 20+ enhancements that extend coverage to a variety of additional exposures, many of them specific to nonprofits. Below are a few examples. Download our D&O Highlight Sheet for more details.
Coverage for supervisory, management and vicarious liability due to allegations of sexual misconduct. It provides up to $250,000 in coverage when councils use proper background checks.
Helps protect the council against employee related allegations of discrimination, wrongful termination and sexual harassment, as well as failure to hire or promote.
Included within Employment Practices Liability coverage is a sublimit of $100,000 in coverage for wage and hour violations as it relates to the FLSA.
Helps protect the council against third party allegations of discrimination and sexual harassment.
This feature helps prevent defense costs from eroding the policy’s limit of liability. The DOL limit matches policy limits up to a maximum of $5M.
Includes defense costs alleging violations of Regulatory Legislation, and in addition, payment of up to $10,000 of fines per individual up to $100,000 in total.
Provides coverage for alleged violations of the Sherman Antitrust Act or similar federal, state or local statutes.
Specified defense costs coverage for alleged violations of nonprofit specific IRS tax codes pursuant to the IRS Code of 1986.
Provides coverage for the 10% excise tax imposed in connection with allegations of an “excess benefits transaction”.
Provides $80,000 of Public Relation Firm, Law Firm, or Crisis Management Firm after a defined Crisis Management Event. Such events include allegations of Abuse, Sexual Misconduct, Debt default, Workplace Violence, Nonprofit Tax status challenge, Breach of Identity Confidentiality, Abduction of child, and Donor Disputes
Among other coverage enhancements, this endorsement includes $50,000 for the following: Identity Theft, Terrorism Travel Coverage, Terrorism Temporary Meeting Space, Workplace Violence expenses, Travel Accident and Donation Relief.
Why Nonprofits Need Fiduciary Liability
Fiduciaries are defined as anyone having discretionary authority over an employee benefit plan or who assists in its administration. Under the Employee Retirement Income Security Act of 1974 (ERISA), a fiduciary must:
- Act exclusively for the benefit of plan participants
- Act as a prudent person would under similar circumstances
- Ensure that investments are diversified except where provided otherwise in the plan
- Monitor performance of investments and outside professionals
- Understand and comply with ERISA, IRS and the Department of Labor rules
- Provide plan participants with sufficient information to make informed decisions
Under ERISA law, fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their errors, omissions or breach of duty in meeting these responsibilities. Typical claim allegations include imprudent investments, improper advice, lack of investment diversity and negligence in the administration of the plan.
Litigation targets can include the employer or the plan itself. Suits can be brought by plan participants, participants’ legal estates, the Department of Labor, and the Pension Benefit Guaranty Corporation.
If your council is responsible for or administers an employee benefit plan, you need Fiduciary Liability Insurance.
To learn more about our Fiduciary Liability Insurance, please view the Great American highlight sheet.
Download Highlight Sheet
GSUSA Master Trust: Important Information
If your council was a participant of the GSUSA Retirement Trust you have coverage for this exposure under a master Fiduciary policy. You are allocated a portion of this premium and it is billed annually by our Aon office in New York. This policy is specific to your council’s exposure related to the Retirement Trust. Please note the following:
- If your council is offering employee benefit plans currently, you do not have coverage for any exposures unless your council has purchased a separate Fiduciary Liability Insurance - specific to your council.
To find out more about your council’s Fiduciary exposure, please call Affinity Nonprofits at 800-432-7465.
The Directors & Officers Liability and Fiduciary Liability Insurance Programs are underwritten by the Great American Insurance Group.
- There are over 3,000 property and casualty insurance companies in the U.S.
- Only 50 are included on the Ward 50® list for safety, consistency and performance.
- Only five have been rated A (Excellent) or better by A.M. Best Co. for over 100 years.
- Great American is one of only two companies that appear on both lists.
*Great American Insurance, http://www.greatamericaninsurancegroup.com, October 2017.
How to Report a Claim
In the event of a claim or potential claim, you may put the carrier on notice directly using the following information.
Notice of claims should be sent to Great American using the following. Please be sure to reference the name of your council, your policy number, and copy your Affinity Nonprofit representative when submitting the claim information:
Email: [email protected]
Mailing Address:
GREAT AMERICAN INSURANCE GROUP
EXECUTIVE LIABILITY DIVISION
CLAIMS DEPARTMENT
P.O. BOX 66943
CHICAGO, IL 60666
When sending notice please provide the following information if available:
- The reasons for anticipating claim
- The nature and date of the alleged wrongful act
- The identity of the insured individuals allegedly involved
- The alleged injuries or damages sustained
- The names of potential claimants
- The manner in which you first became aware of the alleged wrongful act
- The contact at your council who should receive all claim related materials from the carrier
Affinity Nonprofits
Affinity Nonprofits is a brand name for the brokerage and program administration operations of Aon Affinity focused on the nonprofit sector. They specialize in developing, marketing, and underwriting customized insurance for nonprofit organizations.
- Over 65,000 nonprofit clients
- Partners with over 5,000 independent agent and brokers
- 35 years’ experience creating unique and exclusive insurance offerings designed for nonprofits
- Endorsed by the American Society of Association Executives, United Way Worldwide, American Alliance of Museums, Council on Foundations and others
Aon Affinity
Aon Affinity is a brand name of Affinity Insurance Services, Inc., the premier provider of innovative insurance solutions for groups with a common profession, interest, transaction, or event.
- Over 26 million individual customers
- Endorsed by more than 200 professional associations
- Over 2,000 employees across the U.S.
- Partners with over 16,000 independent agent and brokers
- Relationships with 175+ insurance carriers
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