Are Your Personal Assets Exposed When You Volunteer for a Non-Profit Organization?

Absolutely! While we encourage our clients to serve on not-for-profit boards, they must know it is not without risk.

As a board member, you assume a fiduciary duty and your acts and decisions can be challenged in the legal system. Therefore, agreement to serve on a not-for-profit board must come after considering the liability you are assuming and understanding the insurance protection in place. Before committing, make sure you learn about the organization and are comfortable with such matters as its human resources policies and procedures and the internal controls surrounding the handling of funds.

Is coverage afforded through my homeowners and excess liability policies?

Typically, your homeowners and excess liability (umbrella) policies will cover you for bodily injury and property damage arising out of your activities as a volunteer on the board. However, neither covers you for accusations of poor decisions. Suits surrounding mismanagement of funds, wrongful termination, discrimination, breach of duty and conflict of interest are most prevalent. As frivolous as many of these suits may be, the defense costs can be substantial. Before sitting on a board, you should review the organization's directors and officers liability insurance coverage and limits. Keep in mind that the coverage limit is shared by all board members. Thus, if the board has 10 members and the limit is $1 million, the protection provided for you may be insufficient. Many organizations operate on a tight budget and may not have purchased the most comprehensive contracts or the highest limits. Furthermore, with an increase in corporate scandals and the regulatory changes brought on by Sarbanes-Oxley, insurance companies are underwriting organizations more strictly and limiting the coverages provided.

How can I protect myself and my assets?

Many carriers have the ability to add directors and officers coverage to your umbrella policy. Typically, the coverage will cost under $1,000 a year and provide $1 million or $2 million of protection, as long as you sit on five or fewer boards and the organization(s) carries a policy with a minimum limit of $1 million. Terms and conditions differ by carrier, so consult your insurance advisor. Alternatively, you can purchase a separate personal directors and officers liability policy that will cover you in excess of any coverage provided by the organization. You can secure limits up to $10 million and the policy can be tailored to provide coverage over multiple organizations with customized terms. Very often we can negotiate the contract to allow for you to choose your own counsel in the event of a suit. The cost is dependent on the types of organizations and the limits desired.

Questions? We would love to discuss this or any other insurance matter with you. Please call Spencer Houldin, Peter Houldin, Kurt Thoennessen, or Karen Russell at 860.868.7361.

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