When a Nonprofit Board Should Consider D&O Coverage

The short answer: evaluate the exposure rather than assuming yes or no

The available evidence does not establish a universal law requiring every nonprofit to carry directors and officers liability insurance. One insurance marketplace likewise says nonprofit D&O coverage is not typically required by law, while describing it as a potential safeguard against legal expenses arising from leadership decisions (overview of nonprofit D&O insurance).

The absence of a general mandate does not settle the purchasing decision. A nonprofit can face an allegation even if its leaders ultimately did nothing wrong. Responding may require counsel, document collection, interviews, motions, investigations, or negotiation before liability is determined. Subject to its wording, a D&O policy may help pay covered defense costs, settlements, and judgments.

The central question is:

Could this nonprofit fund a leadership-related legal defense, fulfill any lawful indemnification obligations, and absorb an uncovered settlement or judgment without disrupting its mission?

Before answering, review more than state nonprofit law. Check:

• Articles, bylaws, and indemnification provisions
• Grant and funding agreements
• Loan documents
• Leases
• Government contracts
• Service, partnership, and vendor agreements
• Any insurance commitments made to directors or executives

Some government or foundation grant agreements may stipulate liability coverage or leadership protection, but that is not true of every grant. Read the actual agreement rather than treating “grant funded” as proof of a requirement.

The nonprofit’s people, finances, and operations also matter. A staffed social-services provider with restricted grants, multiple locations, employment decisions, public programs, and regulatory obligations presents a different risk profile from a new volunteer club with little money and few contracts. Small size, however, does not prove that an organization can afford to defend a claim.

Three questions provide a practical starting point:

1. Can the organization fund a legal defense from cash it is permitted to use?
2. Can it indemnify directors and officers when its governing documents and applicable law permit or require that response?
3. Could it absorb an uncovered loss without cutting programs or jeopardizing operations?

If the nonprofit cannot confidently answer those questions, has employees or complex operations, or may be subject to an insurance requirement, the board has a stronger reason to investigate coverage and compare quotes. It may also reasonably decide to retain the risk after confirming its obligations and financial capacity. Either way, the decision should be deliberate, recorded, and reviewed when circumstances change.

This article provides general insurance education, not legal, financial, or individualized insurance advice. Insurance Roster recommends confirming policy and jurisdiction-specific details before buying coverage or filing a claim (Insurance Roster’s general-information approach). Its Terms and Conditions also explain the limits of that educational material. A nonprofit attorney should address questions about applicable law, immunity, governing documents, and indemnification; a qualified broker or coverage attorney can help interpret a proposed policy.

What can put a nonprofit and its leaders in a D&O claim?

Nonprofit directors and officers make decisions involving:

• Budgets, reserves, and investments
• Restricted donations and grants
• Fundraising communications
• Contracts and vendors
• Hiring, compensation, discipline, and termination
• Program eligibility and service delivery
• Regulatory filings and compliance
• Conflicts of interest
• Executive oversight
• Expansion, restructuring, and closure

A decision need not be dishonest or reckless to attract a claim. Someone may allege that the board acted without sufficient information, favored an insider, exceeded its authority, ignored the bylaws, misrepresented the organization’s finances, or failed to supervise management.

The three core duties in plain language

Nonprofit leaders are commonly described as owing duties of care, loyalty, and obedience. Their precise legal application depends on the jurisdiction, governing documents, facts, and the person’s role.

• Duty of care: Make informed and attentive decisions. In practice, that may involve reviewing relevant materials, asking questions, obtaining appropriate expertise, and exercising independent judgment.
• Duty of loyalty: Put the nonprofit’s interests ahead of personal interests, disclose conflicts, and use an appropriate recusal process.
• Duty of obedience: Act consistently with the nonprofit’s mission, governing documents, and applicable legal obligations.

The Colorado Nonprofit Association uses these three duties to explain nonprofit leadership exposure while warning that D&O policy coverage can vary widely (explanation of fiduciary duties and D&O structure). That overview is general insurance guidance rather than a substitute for jurisdiction-specific legal advice.

Possible allegations include:

• Breach of fiduciary duty
• Mismanagement or misuse of funds
• A misleading statement or material omission
• An undisclosed conflict of interest
• Failure to follow bylaws or board procedures
• Failure to perform an official duty
• Negligent supervision
• Misuse of authority
• Regulatory noncompliance
• Improper employment action
• Failure to honor restrictions attached to funds

Potential claimants may include current or former employees, vendors, donors, beneficiaries, competitors, members, counterparties, and regulators. Travelers identifies a similarly broad range of possible claimants and allegations, including misleading statements, breach of duty, and misuse of funds or authority (examples of nonprofit D&O allegations).

Consider four bounded hypotheticals:

• Restricted funds: A donor alleges that money restricted to one program was used for general operations. The board believes its accounting treatment was permissible; the donor disagrees.
• Vendor decision: A board terminates an important contract after a performance dispute. The vendor alleges that officers made misleading statements or misused their authority.
• Regulatory matter: An agency investigates whether the nonprofit met applicable program or reporting obligations and names both the organization and an executive.
• Employment dispute: A terminated executive alleges discrimination and retaliation. Whether D&O, employment practices liability insurance, or another coverage part may respond depends on the actual wording.

An allegation is not proof. A claimant may lack evidence, the board may have acted appropriately, or an investigation may end without action. Even so, responding can consume organizational money and management attention. D&O insurance is relevant because the cost of defending a covered allegation may arise before anyone determines whether wrongdoing occurred.

What nonprofit D&O insurance may pay—and how Side A, B, and C differ

Subject to the contract, D&O insurance may help pay defense costs, settlements, and judgments arising from covered allegations of wrongful acts. “Wrongful act” is a defined policy term, not a promise to cover every lawsuit or unfavorable outcome.

The structure is often described through three components:

Coverage component	Intended protection	Typical financial path
Side A	Covered individual loss when the nonprofit cannot legally or financially indemnify a director or officer	The policy responds directly to the insured individual’s covered loss
Side B	The nonprofit after it provides permissible indemnification to an insured director or officer	The organization pays or advances covered costs and seeks reimbursement, commonly subject to a retention
Side C	The nonprofit entity for specified claims made directly against it	The policy responds to covered entity loss, subject to the applicable retention and limit

This Side A, B, and C framework is summarized in insurance-industry education for nonprofits, but the actual grant of coverage and definitions must be checked in the proposed form (overview of the three D&O coverage sides).

Side A: non-indemnified individual loss

Side A is intended for covered losses of directors or officers when the nonprofit cannot indemnify them because indemnification is legally unavailable or the organization lacks the financial capacity to provide it.

Scenario: A regulator names a former treasurer individually. The nonprofit cannot indemnify that person for part of the matter. If the allegations, person, claim, and loss otherwise satisfy the policy, Side A may respond to covered expenses.

Do not assume that every Side A provision has no deductible or retention. Confirm the actual structure.

Side B: reimbursement for indemnification

Side B reimburses the nonprofit for covered amounts it permissibly pays or advances on behalf of an insured leader. This component commonly has a retention.

Scenario: A director is sued over a board vote. The organization determines that it may advance defense expenses and does so. It then seeks reimbursement under Side B, less the applicable retention and subject to all other terms.

Side B can therefore support both the organization’s balance sheet and its lawful indemnification commitments.

Side C: entity coverage

Side C addresses specified claims made against the nonprofit itself.

Scenario: A donor sues the nonprofit and two officers over alleged misstatements about the use of a campaign gift. Side C may be relevant to the entity’s covered loss, while the individual coverage provisions may be relevant to the officers.

Do not infer entity coverage from the policy’s title. Confirm what claims against the organization are included and whether the entity shares a limit with individual insureds.

Who counts as an insured?

Depending on the policy, insureds may include:

• The nonprofit entity
• Current, former, or future directors and trustees
• Officers and executives
• Employees
• Volunteers
• Committee members
• Interns or trainees
• Spouses in limited circumstances
• Independent contractors in limited circumstances

No category should be assumed. One specialist nonprofit insurer, for example, advertises a product that includes the nonprofit, directors, trustees, officers, employees, volunteers, committee members, interns, trainees, and spouses. Those are features of that provider’s product, not a market-wide rule (example of a broad insured definition).

Review former leaders as carefully as current ones. A claim made now may concern a decision made by someone who has left the board. Also ask how the form treats advisory-board members, chapter leaders, temporary executives, contractors, and volunteers performing managerial functions.

Shared limits and defense-cost erosion

The limit shown on a declarations page may be shared by the entity and insured individuals. Multiple claims or coverage parts may also draw from one aggregate. Under some forms, covered defense expenses reduce the limit; other products advertise defense expenses outside the limit. A nonprofit director’s guide from Marsh McLennan Agency specifically warns that shared limits and defense expenses can reduce the protection remaining for the organization and its leaders (questions directors should ask about D&O).

Hypothetical limit example: Assume a policy has a $1 million shared limit, and $300,000 of covered defense expenses is charged against that limit. $700,000 remains for a settlement, judgment, or later covered claim, subject to all policy terms.

That is arithmetic, not a recommended limit or prediction of claim cost. The board should model the quote it is actually considering, including what happens when several insureds are named or multiple claims affect the same aggregate.

Why incorporation, indemnification, and volunteer protection may not be enough

Boards sometimes treat four protections as interchangeable:

1. The nonprofit’s separate legal existence
2. Statutory volunteer protection or immunity
3. Organizational indemnification
4. Insurance

They perform different functions.

Separate legal existence

Incorporation generally separates organizational obligations from the personal obligations of directors and officers, subject to applicable law and the facts. It does not necessarily prevent a claimant from naming an individual or alleging personal misconduct, breach of duty, misuse of authority, or another basis for liability. General insurance guidance discussing nonprofit incorporation and director exposure emphasizes that these issues remain fact- and jurisdiction-dependent (discussion of incorporation and director protection).

Being named does not mean a director will ultimately owe damages. It does mean that the person and organization may need to respond to the allegation.

Volunteer protection

The federal Volunteer Protection Act offers limited protection to qualifying uncompensated volunteers under specified conditions. It does not protect every person, action, or decision and should not be treated as a source of money for legal defense costs. State protections may differ, so general summaries cannot determine whether immunity applies to a particular board member. BoardEffect’s discussion likewise describes the federal protection as limited and distinguishes it from defense-cost funding (discussion of volunteer protection and defense costs).

Organizational indemnification

Indemnification concerns the nonprofit’s authority or obligation to protect a director or officer by paying or advancing certain expenses. Its operation may depend on:

• Applicable nonprofit corporation law
• Articles and bylaws
• Separate indemnification agreements
• The person’s role and conduct
• Required findings or approvals
• Whether payment is mandatory or discretionary
• The nonprofit’s financial capacity

A broad promise in the bylaws does not itself establish that every allegation may legally be indemnified or that the nonprofit has enough available cash to honor the promise. These questions require review of the governing documents and applicable law.

That potential gap explains the intended role of Side A: it addresses covered individual loss when the organization cannot legally or financially indemnify the insured. Side B instead reimburses the organization when it provides covered, permissible indemnification.

Insurance

Insurance transfers specified financial risk under a contract. It does not create immunity, guarantee protection of personal assets, or make every allegation covered. Coverage may be affected by exclusions, retentions, limits, insured definitions, and policy conditions.

The practical distinction is:

Immunity may affect whether a person ultimately owes damages. Insurance may provide money for a covered response while that issue is being decided.

A director could have a strong legal defense and still need counsel. Conversely, a policy might fund part of a defense but not an excluded or otherwise uncovered loss. Boards should ask qualified counsel about personal liability, volunteer protection, and indemnification rather than relying on a general insurance article.

A risk matrix for small, staffed, grant-funded, and complex nonprofits

There is no supported size cutoff below which D&O coverage becomes unnecessary. A better framework examines the decisions being made, who might challenge them, and whether the nonprofit could finance a response.

This matrix is non-prescriptive. It identifies issues for review rather than determining whether coverage must be purchased.

Risk tier	Typical characteristics	Exposures to examine	Financial question	Possible board response
1. Low-complexity volunteer group	No employees; few volunteers; limited financial activity; simple programs; few contracts	Governance disagreements, donations, bylaws, authority to act, basic filings	Could available cash fund a defense?	Confirm obligations; consider an indicative quote if a defense would be unaffordable; otherwise document the decision and review date
2. Volunteer-led organization handling meaningful funds or contracts	Significant donations or reserves; restricted gifts; leases, vendors, sponsorships, or grants	Fund restrictions, contract disputes, conflicts, fundraising statements, oversight duties	Which assets may lawfully be used for defense?	Compare quotes and review indemnification, fund restrictions, and agreement requirements
3. Staffed or grant-funded nonprofit	Employees; payroll; recurring grants; HR decisions; service delivery; several contracts	Employment allegations, grant compliance, executive oversight, donor restrictions, vendor disputes	Would defense spending compete with payroll or programs?	Evaluate D&O and EPLI terms, shared limits, retentions, and separate versus bundled options
4. Regulated, multi-location, growing, or complex nonprofit	Multiple sites or entities; regulated services; rapid hiring; substantial budgets; complex grants; prior disputes	Regulatory inquiries, multi-party claims, employment matters, reporting, transactions, affiliate oversight	Could one complex matter or several claims exhaust available resources?	Conduct a structured legal and broker review of limits, exclusions, investigations, insured entities, and defense arrangements

How to assess your tier

Do not rely on revenue alone. Consider these factors together:

• Employees: A volunteer-only organization may have less employment exposure than a staffed nonprofit, but disputes can still arise from executive, contractor, or volunteer decisions.
• Volunteers: A large or decentralized volunteer base can create supervision and authority questions.
• Financial activity: Review transaction volume, reserves, investments, fundraising statements, and approval authority.
• Restricted funds: Determine what restrictions apply and which resources may lawfully be used for a defense.
• Contracts: Examine leases, government awards, service agreements, debt, partnerships, and affiliate arrangements.
• Public programs: Consider eligibility decisions, communications, and promises made to beneficiaries.
• Regulation: Review licensing, filings, government funding, and sector-specific oversight.
• Locations and affiliates: Additional sites, chapters, and entities can create more decisions and uncertainty about who is insured.
• Governance complexity: Consider committees, advisory boards, founder influence, related-party transactions, and delegated authority.
• Prior disputes: Complaints, threatened claims, employment issues, donor disagreements, and regulatory correspondence may affect both risk and underwriting.
• Ability to self-fund: Focus on available liquidity, not just total assets or annual revenue.

A larger nonprofit may have more resources but also more employees, contracts, grants, programs, and oversight. A smaller organization may have fewer exposures yet much less capacity to fund a defense. Size informs the analysis; it does not decide it.

Events that should trigger a fresh review

The case for reviewing D&O coverage becomes stronger when a nonprofit:

• Hires its first employee
• Accepts a substantial or highly restricted grant
• Enters regulated work
• Adds a location, chapter, affiliate, or subsidiary
• Expands services or serves a new population
• Signs a complex contract, lease, or loan
• Experiences an employment, donor, vendor, or board dispute
• Recruits leaders who expect indemnification or insurance
• Undertakes a merger, closure, restructuring, or leadership transition

Formal leadership, staffing, public programs, regulation, growth, and operational complexity are among the characteristics Insureon identifies as relevant to a nonprofit’s D&O evaluation (risk characteristics relevant to nonprofit D&O).

A board can reasonably reach one of three outcomes:

1. Obtain and compare quotes now, particularly where available resources could not absorb a defense.
2. Investigate legal or contractual obligations first, including requirements in grants, loans, leases, and service agreements.
3. Retain the risk deliberately, recording why the organization believes that choice is financially tolerable and when it will reconsider.

Revisit the decision during regular insurance or governance reviews and whenever operations change materially.

D&O is not the same as general liability, EPLI, E&O, or fiduciary liability

“Liability insurance” is not one interchangeable product. Different policies address different categories of allegations, and the actual overlap or gaps depend on definitions, exclusions, endorsements, and other terms.

Coverage	Primary risk category	Illustrative nonprofit scenario
D&O	Specified allegations arising from leadership, management, or governance decisions	A donor alleges the board misrepresented how restricted campaign funds would be used
General liability	Commonly addresses third-party bodily injury, property damage, and specified personal or advertising injury	A visitor is injured at a fundraising event
EPLI	Employment allegations such as discrimination, harassment, retaliation, wrongful termination, or unfair hiring practices	A former employee alleges retaliatory termination
E&O / professional liability	Alleged errors, omissions, negligence, or bad advice in professional services	A client alleges that professional counseling or consulting caused financial harm
Fiduciary liability	Alleged breaches involving administration of employee benefit plans or similar functions defined by the policy	Employees allege that a benefit plan was improperly administered
Cyber insurance	Data breaches, privacy liability, incident response, and other cyber risks specified in the policy	An attacker obtains donor and employee information

D&O versus general liability

D&O focuses on specified management and governance allegations. General liability addresses a different risk category and should not be assumed to cover employment allegations, alleged financial mismanagement, or internal governance disputes. The actual policy language controls.

D&O versus EPLI

EPLI is designed for specified employment allegations, which may include discrimination, harassment, retaliation, wrongful termination, and unfair hiring practices.

Employment protection may be:

• Included in a D&O form
• Added by endorsement
• Packaged with D&O
• Subject to a separate limit or retention
• Purchased as a separate policy
• Excluded from the D&O coverage

Insureon distinguishes EPLI from D&O while noting that the two may be purchased together in a management-liability package (comparison of nonprofit EPLI and D&O). Other providers advertise D&O forms that include employment coverage, illustrating why the proposed wording—not the product label—must answer the question.

A terminated executive’s discrimination claim should therefore prompt, “Where is employment-practices coverage provided?” rather than, “Our D&O policy must cover it.”

D&O versus E&O

E&O, also called professional liability, concerns alleged errors in professional services or advice. D&O concerns specified leadership and management decisions.

If a board approves an expansion that allegedly misuses grant money, D&O may be relevant. If a client alleges that a staff professional provided negligent counseling, technical advice, or another service, E&O may be relevant. Both policies may need review when allegations overlap.

Fiduciary and cyber coverage

Fiduciary liability and cyber insurance may be packaged with management-liability products, but they are not automatically part of every D&O policy. A package may use separate limits, sublimits, or a shared aggregate.

For each quote, ask:

• Is the protection a separate policy, endorsement, or coverage part?
• Does it have a separate limit or share the D&O aggregate?
• Does it have its own retention?
• Which definitions and exclusions apply?
• If more than one policy may respond, how do the policies address the overlap?

The goal is to map foreseeable scenarios to the proposed coverage before purchase, not to rely on a broad label after a claim occurs.

How to compare D&O quotes and policy wording

A premium comparison is useful only if the quotes address substantially similar risks.

Use this board-ready checklist with the broker and, when appropriate, coverage counsel.

1. Identify every insured

Confirm whether the policy includes:

• The named nonprofit
• Subsidiaries, affiliates, chapters, or controlled entities
• Current, former, and future directors or trustees
• Officers and executives
• Employees and volunteers
• Committee and advisory-board members
• Interns and trainees
• Contractors, temporary workers, or leased workers
• Spouses, estates, heirs, or legal representatives where relevant

Ask how newly formed or acquired entities are treated. Verify the policy definitions rather than relying on informal titles used within the organization.

2. Confirm entity and employment coverage

Ask which claims against the nonprofit itself are covered and whether an individual insured must also be named. Determine whether the entity and individuals share one limit.

For employment practices, ask whether protection is included, optional, excluded, subject to a sublimit, or available through a separate EPLI policy. Confirm which employees and claimants are included and whether applicants, volunteers, or contractors are addressed.

3. Compare limits and retentions

Record:

• Per-claim limit
• Policy aggregate
• Any separate Side A limit
• Sublimits
• Shared limits across D&O, EPLI, fiduciary, or cyber coverage
• Treatment of defense expenses
• Retention or deductible for each coverage component
• Who must pay the retention
• How related claims affect the applicable retention and aggregate

A high retention may leave the nonprofit funding more of a smaller covered matter. A lower retention may affect premium. The appropriate tradeoff depends on the organization’s available cash and the risk it intends to retain.

4. Ask about timing and continuity

Do not assume every policy uses the same timing or reporting structure. Ask the broker to identify and explain:

• Any prior-acts, retroactive, or continuity provision
• Pending-and-prior-litigation wording
• Questions about known disputes or circumstances
• The policy’s definition of a claim
• Notice and reporting requirements
• Treatment of related claims
• Extended-reporting options
• What changes if the nonprofit replaces the policy or insurer

These should remain policy-specific questions. One provider, for example, advertises prior-acts and extended-reporting features in its own nonprofit form; that product description does not establish that all policies contain the same terms (example of product-specific D&O features).

5. Review exclusions and restrictions

Ask the broker to show the wording involving:

• Prior or pending litigation
• Known circumstances
• Insured-versus-insured disputes
• Contracts and breach-of-contract allegations
• Professional services
• Bodily injury and property damage
• Fraud, dishonesty, or personal profit
• Intentional illegality
• Taxes and unpaid obligations
• Fines and penalties
• Punitive or exemplary damages
• Intellectual property
• Benefits and fiduciary activity
• Cyber and privacy events

Do not treat these subjects as categorically covered or excluded. A provision may contain exceptions, require a final determination, provide limited defense protection, use a sublimit, or direct the exposure to another policy.

6. Understand defense and settlement arrangements

Ask:

• Does the insurer defend the claim, or does the policy reimburse defense expenses?
• Who selects counsel?
• Is an approved panel required?
• Must the insurer consent before expenses are incurred?
• Are any investigation costs included?
• How does the policy address covered and uncovered allegations?
• Who controls settlement decisions?
• What does the consent-to-settle provision require?

When a demand, charge, subpoena, complaint, investigation, or serious threat arrives, preserve relevant records and follow the policy’s notice and consent provisions. Obtain policy-specific advice rather than relying on a general deadline or procedure.

7. Test realistic nonprofit scenarios

Ask the broker to explain how the form would address:

• A regulator’s investigation
• Alleged misuse of a restricted grant
• A donor dispute
• A conflict between the nonprofit and a board member
• A former executive’s employment claim
• A vendor’s breach-of-contract lawsuit
• An allegation involving professional services
• A claim naming the entity and several directors

The answer may depend on the allegations, definitions, exclusions, endorsements, applicable law, and how the matter develops. Request the relevant wording rather than relying only on a verbal summary.

8. Choose limits from exposure, not a generic benchmark

No supplied evidence establishes one correct limit for most nonprofits. Consider:

• Plausible defense needs
• Number of people or entities that might be named
• Whether defense expenses reduce the limit
• Available organizational resources
• Employees and employment practices
• Grants and restricted funds
• Program type and geographic reach
• Contractual obligations
• Regulatory oversight
• Prior claims or disputes
• Shared aggregates and sublimits
• Availability and terms of excess coverage

Request more than one limit and retention option. Model what remains after defense expenses and what happens if multiple matters affect the same aggregate.

9. Treat premium as one variable

Pricing may vary with organizational size, finances, workforce, operations, governance, claims history, limits, deductibles, and breadth of coverage. Seller-reported premiums are not dependable predictions for a particular nonprofit when the underlying limits, dates, geography, and underwriting assumptions differ.

Ask the broker to explain major pricing differences. A lower quote may reflect favorable underwriting, but it may also contain narrower definitions, a larger retention, a smaller aggregate, or more restrictive terms.

10. Create a board record

The minutes or supporting materials should record:

• Quotes and forms compared
• People and entities the board intended to insure
• Material exclusions and sublimits
• Defense-cost treatment
• Retentions and limits
• Legal or contractual requirements investigated
• Assumptions about staffing, grants, programs, and disputes
• The decision and rationale
• The review date and trigger events

That record does not guarantee the decision is correct. It demonstrates that the board considered the organization’s circumstances rather than allowing coverage to lapse—or remain unpurchased—by default.

Insurance should back up—not replace—sound governance

D&O insurance is financial risk transfer. It cannot replace competent oversight, conflict management, financial controls, compliance work, or accurate records.

Board education should cover the duties of care, loyalty, and obedience as well as the organization’s:

• Mission and governing documents
• Committee and delegation structure
• Financial position
• Grant and donation restrictions
• Key contracts
• Employment responsibilities
• Regulatory and filing calendar
• Complaint and escalation procedures

Governance and conflict controls

Use a written conflict-of-interest process requiring disclosure, review, and documented recusals where appropriate. Minutes should accurately record attendance, motions, decisions, and recusals without including unnecessary privileged detail.

Minutes should be prepared consistently and should not be reconstructed only after a dispute arises.

Financial and grant controls

Set approval levels for spending, transfers, contracts, compensation, and related-party transactions. Separate authorization, custody, and reconciliation functions where practical. Give the board understandable financial reports and document its consideration of significant variances.

Track restricted donations and grants so the organization can demonstrate compliance. Maintain a calendar for grant reports, renewals, filings, licenses, and contractual deadlines. Resolve uncertainty about a restriction before using the funds.

Reporting and employment procedures

Create a trusted process for reporting suspected misconduct or compliance failures. Define who receives complaints, how conflicts in the reporting chain are handled, when outside assistance is used, and how retaliation concerns are addressed.

Staffed nonprofits should use consistent written procedures for:

• Recruiting and hiring
• Job descriptions and performance expectations
• Accommodation requests
• Complaints and investigations
• Discipline and documentation
• Termination and separation

These controls cannot guarantee that a dispute will be prevented or defeated. Because employment allegations may require EPLI rather than basic D&O coverage, employment procedures and insurance review should be coordinated.

Align indemnification with insurance

Review the bylaws, applicable law, and any individual indemnification agreements alongside the D&O policy. Look for potential mismatches:

• The governing documents may promise advancement more broadly than the policy reimburses.
• The policy may impose consent requirements before expenses are incurred.
• Side B may carry a retention the nonprofit has not budgeted for.
• Side A may matter when indemnification is unavailable or unaffordable.
• Former directors may be treated differently by the policy and governing documents.

Counsel can advise whether the indemnification language is lawful and appropriate. The broker or coverage adviser can explain how the proposed policy is intended to interact with it.

Be accurate and communicate changes

Insurance applications should be complete and accurate. When an application asks about disputes, threatened claims, finances, layoffs, or regulatory matters, involve the people who know the organization’s history.

Discuss potential claims and material organizational changes promptly with the broker or insurer. The applicable duties and deadlines come from the policy, so follow the actual wording rather than a general rule.

Annual board review list

At each insurance or governance review, ask what changed in:

• Board and executive leadership
• Indemnification provisions
• Employees and employment practices
• Grants and restricted funds
• Programs and professional services
• Locations, chapters, and affiliates
• Contracts, leases, and loans
• Regulation and licensing
• Complaints, disputes, and claims
• Policy limits and shared aggregates
• Exclusions and sublimits
• Definitions of insured people and entities
• Defense, consent, and reporting provisions

Governance controls do not replace insurance, and insurance does not replace governance. The two should operate together.

Frequently asked questions

Is D&O insurance legally required for a nonprofit?

The supplied evidence does not establish a universal law requiring every nonprofit to carry D&O insurance. Insureon states that it is not typically required by law, but a nonprofit’s obligations may depend on its jurisdiction and specific agreements.

Check applicable law, governing documents, grants, loans, leases, government contracts, and other agreements. Qualified counsel should resolve jurisdiction-specific legal questions.

Can a nonprofit board member be sued personally?

A claimant can name a director or officer individually and allege breach of duty, misuse of funds or authority, a conflict of interest, a misleading statement, or another wrongful act. Being named does not establish wrongdoing or personal liability.

Incorporation, indemnification, and volunteer-protection laws may provide defenses or financial support, but they do not necessarily prevent an individual from being named or fund every defense. The outcome depends on applicable law, the facts, the person’s conduct, and the organization’s governing documents.

Does a small or all-volunteer nonprofit need D&O insurance?

Possibly. A volunteer-only organization may have less employment exposure than a staffed nonprofit, but it can still face disputes involving donations, restricted funds, bylaws, contracts, donors, vendors, regulators, or internal governance.

Evaluate the organization’s financial activity, agreements, public programs, regulatory obligations, prior disputes, and ability to fund a defense. Small size alone does not establish that declining coverage is financially safe.

Does nonprofit D&O insurance include employment-practices coverage?

Sometimes, but not always. Employment-practices protection may be included, endorsed, packaged with D&O, subject to a separate limit, or sold through a separate EPLI policy.

Ask specifically about discrimination, harassment, retaliation, wrongful termination, hiring, discipline, wage-and-hour allegations, and claims by applicants, volunteers, or contractors. Compare the definitions, exclusions, limits, and retentions in the actual proposal.

How much D&O coverage should a nonprofit buy?

There is no supported universal amount. Select limits by examining plausible defense needs, the number of insureds who could be named, defense-cost treatment, employees, grants, contracts, programs, regulation, claims history, available resources, shared aggregates, and contractual minimums.

Request several limit and retention options. Model how much protection would remain after defense expenses and how multiple claims could affect the aggregate. The board should choose an amount it can justify from its own exposure and financial capacity rather than adopting a generic benchmark.

For most boards, the useful question is not whether every nonprofit must have D&O insurance. It is whether this nonprofit can absorb its actual leadership-related risks without it. Identify the governance, employment, financial, grant, contractual, and regulatory exposures; check legal and contractual requirements; compare actual policy wording; and document the decision. If coverage is purchased, place it alongside appropriate indemnification provisions, board education, employment procedures, financial controls, accurate records, and regular risk reviews.