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Purchasing Not For Profit D&O Insurance


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Primer for Considering and Purchasing Not-For-Profit D&O Insurance

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Purchasing Not For Profit D&O Insurance

  1. 1. Purchasing Not-For-Profit D&O Insurance – A Primer for Board Members and Organization Executives Paul Ferrillo, Esq. Weil Gotshal & Manges LLP May 18, 2011
  2. 2. Purchasing Not-For-Profit D&O Insurance <ul><li>Why purchase D&O Insurance? </li></ul><ul><li>Who should be covered? </li></ul><ul><li>What should be covered? </li></ul><ul><li>How much should you buy? </li></ul><ul><li>From whom should you buy? </li></ul><ul><li>Engaging a broker? </li></ul>
  3. 3. Purchasing Not-For-Profit D&O Insurance <ul><li>Why purchase D&O Insurance? </li></ul><ul><ul><li>Directors owe fiduciary duties to the not-for profit, like the duties of care and loyalty. Third parties (like donors, creditors or litigants) could claim you breached those duties in connection with service on the board (e.g. failure to supervise the affairs of the not-for-profit) </li></ul></ul><ul><ul><li>Charitable immunity statutes may not fully protect you depending upon the nature of underlying allegations made in the complaint </li></ul></ul><ul><ul><li>You face risks similar to those of private companies, such as employment practices lawsuits from employees or volunteers </li></ul></ul>
  4. 4. Purchasing Not-For-Profit D&O Insurance <ul><li>Why purchase D&O Insurance? </li></ul><ul><ul><li>The not-for-profit in question might be very well-meaning, but might not be able to fully indemnify you or advance you defense costs in the event of a Claim arising out of your service on the Board if its balance sheet is not strong enough (or if it is forced to file for bankruptcy). </li></ul></ul>
  5. 5. Purchasing Not-For-Profit D&O Insurance <ul><li>The Plain Fact </li></ul><ul><ul><li>D&O can provide personal asset protection in certain circumstances in the event that unforeseen lawsuits are filed against the Board of the not-for profit and its executives. Remember, bad things can sometimes happen to good people who sit on the Boards of not-for-profits </li></ul></ul>
  6. 6. Purchasing Not-For-Profit D&O Insurance <ul><li>Who should be covered under a not-for-profit D&O policy? </li></ul><ul><ul><li>The entity and its subsidiaries </li></ul></ul><ul><ul><li>The board </li></ul></ul><ul><ul><li>Its trustees </li></ul></ul><ul><ul><li>Its employees </li></ul></ul><ul><ul><li>Its volunteers </li></ul></ul>
  7. 7. Purchasing Not-For-Profit D&O Insurance <ul><li>What should be covered under a not-for-profit D&O policy? </li></ul><ul><ul><li>Insist that the policy provide a broad definition of “Wrongful Act,” which should include: </li></ul></ul><ul><ul><ul><li>Any breach of duty or wrongful or negligent act or mistake </li></ul></ul></ul><ul><ul><ul><li>A broad range of employment practices related claims, including sexual harassment and discrimination claims </li></ul></ul></ul><ul><ul><ul><li>Investigation coverage, for investigations commenced by governmental, regulatory, or law enforcement bodies into alleged wrongful or harmful conduct </li></ul></ul></ul><ul><ul><ul><li>Policy should provide state-of-the-art bankruptcy related protection to the directors and organization’s executives in the event the not-for-profit is forced to restructure or goes out of business </li></ul></ul></ul><ul><ul><ul><li>Other additions to coverage may be obtained that could also give coverage for fiduciary liability claims </li></ul></ul></ul>
  8. 8. Purchasing Not-For-Profit D&O Insurance <ul><li>How much coverage should you insist on for your not-for-profit? </li></ul><ul><ul><li>Generally a matter of the financial constraints of the organization. </li></ul></ul><ul><ul><li>Analysis should be done on the balance sheet of the not-for-profit, paying particular attention to potential liabilities and debts owed (bank debt?) </li></ul></ul><ul><ul><li>Analysis should be done on the organization’s activities – Is there high risk of a claim? Or low risk? </li></ul></ul><ul><ul><li>Buy as much as you can afford to make you comfortable you are protected in the event something bad happens. </li></ul></ul>
  9. 9. Purchasing Not-For-Profit D&O Insurance <ul><li>From who should you buy not-for-profit D&O coverage? </li></ul><ul><ul><li>Only buy from a carrier with an established claims handling and claims paying reputation. D&O insurance is worthless if the carrier won’t pay your claim </li></ul></ul><ul><ul><li>Many name-brand carriers like Chartis, Chubb and Travelers provide comprehensive not-for-profit D&O policies </li></ul></ul>
  10. 10. Purchasing Not-For-Profit D&O Insurance <ul><li>Should you engage an insurance broker to help you purchase not-for-profit D&O insurance? </li></ul><ul><ul><li>Yes! You must engage a broker to purchase this sort of insurance. You cannot purchase it directly from a carrier. </li></ul></ul><ul><ul><li>Many brokers have specialized knowledge of not-for-profit D&O policies, and can help procure broad coverage for you and your organization </li></ul></ul>
  11. 11. Purchasing Not-For-Profit D&O Insurance <ul><li>Any questions: </li></ul><ul><li>Please call Paul Ferrillo, Esq. at Weil: </li></ul><ul><li>212-310-8372 </li></ul><ul><li>646-209-3559 (cell) </li></ul><ul><li>[email_address] (email) </li></ul>