What is Board Liability Insurance?

Board liability insurance is a type of insurance policy that provides coverage to board members of nonprofit organizations, corporations, and other entities. This type of insurance policy is designed to protect board members from any legal action taken against them due to alleged wrongful acts or decisions made by the board of directors.

Although board members are often volunteers who do not receive compensation for their services, they can still be held accountable for their actions. Board liability insurance provides coverage for legal defense costs, settlements, and judgments against board members if they are found liable for damages.

Why is Board Liability Insurance Important?

Board liability insurance is important because it provides essential protection for board members who are at risk of facing lawsuits due to their actions. Even if the board members are acting in good faith and with the best interests of the organization in mind, they can still be sued if their decisions or actions are deemed to be negligent or harmful.

Without board liability insurance, board members may be personally responsible for any damages awarded in a lawsuit. This can lead to financial ruin and may discourage talented individuals from serving on boards of directors in the future.

Board liability insurance is also important for the organization itself. Having insurance coverage can reassure donors, members, and other stakeholders that the organization is financially stable and can weather potential legal challenges.

What Does Board Liability Insurance Cover?

Board liability insurance typically provides coverage for three main types of claims:

1. Directors and Officers Liability (D&O) Claims: D&O claims are brought against board members for alleged wrongful acts or decisions made in their capacity as directors or officers of the organization. This can include claims of breach of fiduciary duty, mismanagement, or negligence.
2. Employment Practices Liability (EPL) Claims: EPL claims are brought against the organization or its board members for alleged discrimination, harassment, or wrongful termination of employees.
3. Fiduciary Liability (FL) Claims: FL claims are brought against the organization or its board members for alleged breaches of fiduciary duty, such as mismanagement of employee benefit plans or investment funds.

Board liability insurance may also provide coverage for other types of claims, such as cyber liability or intellectual property infringement, depending on the policy.

How Much Does Board Liability Insurance Cost?

The cost of board liability insurance can vary depending on several factors, including the size and scope of the organization, the level of risk involved, and the amount of coverage needed.

Most insurance companies offer customized policies that are tailored to the specific needs of the organization. Some factors that may affect the cost of board liability insurance include:

• The industry and size of the organization
• The number of board members and officers
• The level of involvement in risky activities, such as investments or employment decisions
• The amount of coverage needed
• The deductible amount

It is important for organizations to compare policies and obtain quotes from multiple insurance companies before selecting a policy.

FAQs

1. Who Needs Board Liability Insurance?

Any organization with a board of directors or officers should consider board liability insurance. This includes nonprofit organizations, corporations, and other entities.

2. Can Board Liability Insurance Protect Against Criminal Acts?

No, board liability insurance typically does not provide coverage for criminal acts. However, some policies may offer limited coverage for defense costs related to criminal charges.

3. Are All Board Members Covered Under Board Liability Insurance?

Most board liability insurance policies provide coverage for all board members and officers of the organization.

4. How Much Coverage Do I Need?

The amount of coverage needed depends on several factors, such as the size of the organization, the level of risk involved, and the potential damages in a lawsuit. It is important to consult with an insurance professional to determine the appropriate level of coverage for your organization.

5. Can I Be Sued for Making a Good Faith Decision?

Yes, board members can still be sued for making a good faith decision if the decision is deemed to be negligent or harmful to the organization or its stakeholders.