If you serve on a nonprofit Board of Directors, you have likely heard this question or have voiced it yourself. There are countless articles about specific terms and conditions to be cognizant of within a nonprofit Directors and Officers Liability policy. However, there is sparse public information about how to determine adequate limits. One very simplistic question about adequacy of limits can arguably be the toughest question to answer. So, how does a Board decide? There are a number of variables to consider. None of these variables should be looked at in a silo, but rather, they should be considered as a whole.
- What are the assets of the organization?
- What are the collective assets of the individuals on the Board of Directors?
- Who are my stakeholders?
- Does the organization anticipate significant structural change – i.e. mergers
- What is the organization’s claim experience?
- What liability limits do the organization’s peers carry?
Trying to find a common denominator is a difficult task when it comes to determining the best variable for choosing Directors and Officers Liability limits. A worthwhile avenue to pursue when researching this topic is to consult the insurance professionals representing your organization. In other words, ask for advice and thoughts from the respective broker and insurance company. Between the two parties, there is a wealth of resources to tap into. If you have a willing participant in your insurance company partner, your organization might be able to secure parameters of liability limits to consider based on a sample size of your insurance company’s clients. For instance, a request to an underwriting team about the average liability limits carried for nonprofit organizations, within a certain operating budget range, might yield a consistent answer.
Choosing adequate Directors and Officers Liability limits for your nonprofit Board of Directors is challenging. A combination of the Board’s comfort level and scientific benchmarking is usually the best way to arrive at an adequate limit.
Author: Kevin Dougher, Vice President