publication date: Aug 15, 2012
author/source: Barry W. Kwasniewski
When people agree to serve as volunteers on charitable
or not-for-profit boards of directors, potential liability issues are probably
not forefront in their minds. Of course,
this is understandable. If people were
consumed with worry over potential legal liability issues, there would be many
more vacant positions on charitable and not-for-profit boards across
However, once a person
volunteers to serve on a board and gets involved in the challenging issues and
decisions that directors often face, potential liability for the decisions they
make will become important. Directors
and officers liability insurance ("D&O insurance") is an important shield
to protect directors, officers, and even other volunteers and employees, from
potential personal legal liabilities.
Unlike some other common forms of insurance policies,
such as automobile insurance, which are regulated by statute, D&O insurance
is not standard, and coverage will vary substantially between insurers. Therefore, your insurance broker or
consultant will play an important role in securing the D&O insurance policy
which is right for you and your organization.
Some important matters to discuss with your broker include:
The basic level of D&O
insurance starts at $1million. Depending on the size and complexity of your
organization, these insurance limits may need to be substantially increased to avoid
being faced with a claim which may be only partially insured because of
inadequate limits. Ideally, coverage for
any legal or claim investigation fees should be separate from the liability
limits. Otherwise, a substantial amount
of your coverage could be consumed by legal fees if you are faced with a
complicated claim that ends up in court.
Broad dDefinition of "insured"
the protection for your organization, not only the directors and officers, but other
persons involved in carrying out the organization's activities should also be
covered. These persons may include your
volunteers, members, employees, as well as the organization itself.
Broad claim coverage
Some D&O policies only
cover claims for "monetary damages" made in civil lawsuits. For many organizations, this limited claim
coverage is inadequate. Superior D&O
insurance will offer coverage for
Employment practices liability coverage
claims for monetary damages and non-monetary relief, whether or not a lawsuit
is actually commenced;
administrative or regulatory proceedings; and
insurance policies do not provide coverage for matters relating to legal claims
made by an organization's employees or former employees. Depending on the size of the organization,
these types of claims are common and should be covered. A superior D&O insurance policy will
provide coverage for claims relating to:
Territorial scope of coverage
dismissal, sexual or workplace harassment and discrimination (including human rights
related libel, slander or invasion of privacy; and
the failure to provide or enforce adequate
workplace or employment policies.
policies only cover claims made in Canada or the United States. For organizations with activities in other
countries, that limited territorial scope of coverage will not be
adequate. Therefore, you may need
coverage on a worldwide basis, or at the very least in the countries that your
organization is active.
As with all insurance policies,
D&O insurance policies will contain numerous exclusions from coverage. Be sure to read and understand what is
excluded from your coverage. For
example, most policies now exclude any claims relating to abuse or molestation,
including allegations that the directors failed to prevent its occurrence. Sometimes it is possible to negotiate with
the insurer to remove exclusions so as to improve your coverage. Again, this is a matter to review carefully
with your broker.
D&O insurance should form part of your and your
organization's overall insurance protection.
Almost all non-profit and charitable organizations require two or more
kinds of separate insurance policies to cover the range of insurable risks faced
by the organization, its directors, officers and others. In addition to D&O insurance, you will
also typically require General Liability coverage, which is intended to insure
different liability risks than D&O insurance, such as bodily injury and
property damage claims.
Effective insurance protection for you and your
organization is available, and it is worth the time and effort to familiarize
yourself with coverage options. The time
spent in securing proper insurance coverage will provide peace of mind and pay
off in the event that you or your organization are ever faced with a claim or
lawsuit. Barry W. Kwasniewski practices employment and
risk management law with Carters Ottawa office, www.carters.ca.