Here is why you need board member insurance coverage:
As a member of a volunteer or paid board, you’re in charge of the management of the organization you’re serving. That comes with a duty to act in good faith, to put the interests of the organization above your own and to obey the law. You may also have to follow certain statutes (such as reporting requirements) and make sure the organization does the same.
You can be held personally liable if the board or organization doesn’t fulfill its duties and obligations. You can be held liable for financial losses, wrongful dismissal, discrimination, breaches of environmental or tax law and more. If the board is sued, ignorance isn’t a defense. Neither is resigning. You should also never assume the organization has you covered.
Doing your job prudently and to the best of your ability is usually enough—but the scrutiny of boards, which increased following the global financial crisis, gets more intense with every media story of poor corporate governance.
Directors and officers insurance (also known as D&O) offers the peace of mind that board members require. Without it, very few people would agree to serve on a board. D&O insurance covers board members of a corporation or non-profit for losses that the organization can’t cover them for, including their legal costs.
Questions to ask: Does my organization have D&O insurance? Is the policy limit (often $10M or less) enough? If the organization makes a claim on the same insurance, will there be enough left to cover the board members? Was the application for insurance filled out accurately? What’s the track record of the insurer?
Make sure being a board member is a rewarding experience, by understanding your responsibilities and having the right insurance coverage.