Nonprofit Directors & Trustees – Are they adequately personally protected?

There isn’t a nonprofit director or trustee who wants to be personally financially liable for his or her association with a nonprofit director led or trustee led organization.  Those persons currently holding one or more of these positions, or is considering one, should be able to answer the following questions related to the potential of incurring personal financial liability:

  1. Does the indemnification clause in charter provide directors and trustees with protection?  What would be board protection if the organization needs to use all its assets to settle a legal claim on the organization in which board personnel are also cited?
  2. Does the organization have a directors’ & officers’ liability policy (D&O)?  What are its limits on coverage?  Have they been reviewed recently?
  3. How does the D&O recession clause read?  (Ability of the insurance company to cancel the policy for misrepresentation, such as one director or trustee  having not disclosed a piece of material background information, when the policy was initiated.)
  4. Do state volunteer laws offer any protection?
  5. Is it wise to purchase a D&O policy without a recession clause in it?

Responding to these issues may require meetings with legal counsel.  Better safe than sorry?

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