Your nonprofit’s board of directors and officers (many of whom are volunteers) could be personally named in a lawsuit against your nonprofit alleging fraud or financial mismanagement. For example, if a board member invests the nonprofit’s assets unwisely and loses everything; a creditor might sue the nonprofit as well as its directors and officers. In such a case, you’d want directors and officers (D&O) insurance to cover the cost of defending the directors and officers and pay any resulting money damages.
As with any insurance coverage, it’s important to understand what kind of claims are and aren’t covered by a D&O policy. Typical exclusions include damages arising from criminal or fraudulent behavior and claims brought by one director against another. But make sure your policy doesn’t exclude employment-related claims, which are the most common ones filed against directors and officers.
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