It’s no secret that lawsuits can end up costing a business an arm and a leg. Between attorney fees, court costs, and a possible settlement or judgment, expenses quickly skyrocket. But what you may not know is that D&O lawsuits against nonprofits can be just as expensive as they are in the for-profit world.
Luckily, Directors and Officers Insurance offers help when your nonprofit and its board members are targeted by litigation. But how expensive could a lawsuit be? And why may you want a D&O policy to keep the threat of lawsuits manageable? Let’s take a look at some figures to put the big picture of D&O risk together.
How Much D&O Claims Cost: The $100,000 Question
The truth is a D&O claim can easily amount to more than nonprofits or its directors could hope to afford on their own. That’s why every nonprofit should be aware of and prepared for these potential litigation expenses.
According to a survey cited by Insurance Journal , nonprofits reported that…
- Between $35,000 and $100,000 was the average cost to defend against a D&O lawsuit.
- $457,000 was the total average indemnity payment for an adverse judgment.
Those kinds of costs can easily bankrupt an individual board member, if not your entire organization. Plus the threat of these costs can dissuade potential board members from joining your cause in the first place. In “Why Your Board Might Demand You Carry D&O Insurance,” we discussed that the possibility of personal liability can influence whether or not a person becomes a director or officer. After all, few people are willing to risk their financial wellbeing for a job.
Fortunately, nonprofits usually enjoy a measure of protection from certain state laws, and their legal risks may not be as pronounced as those of the for-profit world. Still, if your nonprofit organization grows enough, you may encounter increased risk.
For some context, here’s what D&O claims can cost in the for-profit world, according a survey cited by Inc.com :
- The average cost to settle or litigate a D&O lawsuit for businesses with less than $25 million in revenue was $225,682 in 2008.
- Some losses were as high as $5 million.
It’s not out of the question for a nonprofit to experience these kinds of costs. But that’s why Directors and Officers Insurance exists. Don’t get caught in a lawsuit without it, especially if you want your board members to keep their personal assets.
Frivolous Lawsuits Are Costly, Too
Though the figures cited above mostly relate to lawsuits that end in judgments or settlements (which accrue lots of ongoing court costs and attorney fees), it’s important to realize that meritless lawsuits can’t be shrugged off.
Frivolous lawsuits may not cost $100k, but according to a report by the US Chamber Institute for Legal Reform [PDF], the average cost of defending against one can set you back $2,000 to $5,000.
That’s no small change, especially for a board member who may be serving on your board without compensation. D&O Insurance may offer coverage for these inconvenient costs and may even help if the lawsuit turns out to be not so frivolous after all.
The Price of D&O Protection
Protecting your organization and board members against these expensive claims shouldn’t cost you the arm and leg you were hoping to save. In fact, you can often purchase D&O Insurance at an affordable price — generally, a nonprofit may pay as little as $500 to $1,500 for a D&O policy.
Be sure to ask your insurance agent about your coverage if you have any questions. Also, read “Understanding the 3 Layers of D&O Coverage” for more pointers on managing your D&O risks through insurance.