As nonprofit organizations continue to face tough economic times, there remains an increase in the number of Boards who decide to “price shop” coverage. Many even decide to go without D&O coverage until the organization’s bottom line isn’t quite so lean.
But beware, there are risks involved in considering price over coverage or “going bare.” Organizational assets and the personal assets of Board members could be unnecessarily exposed. Here are some things to consider when price is the issue:
- What coverage are you getting for the price . . .Or what are they losing for the savings?
Some things to consider are, coverage limits (are they adequate for D&O/EPL/Fiduciary), who is covered under the policy, and what amendments are being added. As the Nonprofit market becomes increasingly commoditized, many base forms appear to provide similar coverage. But endorsements should be reviewed carefully – coverage you thought you had could be carved out by endorsement wording.
- Who will handle a lawsuit, if one is brought against you . . .And who will foot the bill?
Insureds need to consider the impact a claim can make on time and the toll it can take on personal finances. A claim can take several months or years before it is resolved and even a frivolous lawsuit takes time to investigate and defend. Without proper D&O coverage, individuals will have to pay for their own defense costs and legal damages, even if the lawsuit is proven groundless.
- Has the Board considered their personal liability . . . Or what’s at stake?
If the organization lacks sufficient insurance coverage, or has decided to go without coverage, the personal assets of the Board could be at risk. Some informed leaders will be reluctant to serve on any board (including HOA’s) unless proper insurance coverage in place. This alone may hamper the organizations ability to attract a quality management team.
The most important consideration is if the organization can afford NOT to have proper coverage. Nonprofits face a substantial risk in this litigious society, and D&O polices are designed to provide organizations the necessary defense and indemnity coverage. Shop coverage not price, and by comparing coverages you will help find the best terms for your client.
Written by, Kim Jones, Associate Account Executive, Management Liability
For more information and risk management materials visit our management liability section of the web.