Q: What liabilities does a nonprofit’s board of directors have?
A: Directors and officers of a nonprofit organization can be liable for issues related to their corporate duties, fiduciary responsibilities, and decisions. What’s most important to note is that board members can be personally liable for certain claims. This means that by becoming a board member, a person assumes a measure of risk and opens up their personal assets to potential losses.
Directors and Officers Insurance seeks to protect these board members and their assets, minimizing the negative impact of personal liability.
So what can a board member be liable for? There are three basic groups of liability to consider…
- Corporate liability. Board members have a duty to run the organization according to its charter and abide by state incorporation laws. Failure to do so can lead to a D&O claim. This category can include the fiduciary responsibilities the organization has to its employees, such as paying payroll and retirement. It also includes employment practices liabilities, such as employee claims of discrimination and harassment.
- Federal liability. This is the duty of the board to adhere to federal rules and regulations in order to maintain the organization’s tax-exempt status. For instance, if a board causes a nonprofit to lose its tax exemption, the board might be sued.
- General liability. This includes third-party allegations of personal injury or property damage. For example, a visitor might sue after tripping and falling on the nonprofit’s premises, claiming the board could have made the area safer. (See our General Liability Insurance page for more information on these types of claims.)
These claims may come from employees, former employees, volunteers, members, government agencies, donors, investors, or other third parties with a stake in the board’s performance. Some claims may name individual board members, some may name the whole board, and some may name the nonprofit organization and the board.
In short, a board of directors takes on a lot of responsibility and risk. Fortunately, Directors and Officers Insurance can offer coverage for these situations. Your board’s specific liabilities depend on your organization, of course, so be sure to talk to your insurance agent about your coverage options.