Do Non-profit Organisations Need D&O Liability Insurance?

Every organisation needs D&O liability insurance in order to protect the interests of its directors and the company. According to a global survey conducted by the Assurex Global network, only 54 per cent of non-profit organisations own D&O liability insurance. However, it is the need of every organisation to hold valid insurance policies in order to cover risks involved in the operation of a company.

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Every organisation is vulnerable to lawsuits which may be instituted by anyone to cause professional losses to the organisation. The D&O liability insurance protects the top-level professional management of an organisation to eliminate their liability by engaging attorneys.

Let us discuss some key factors which require a non-profit organisation to purchase a D&O liability insurance policy.

Protects the Interest of the Entity

It does not matter if the non-profit organisation conducts its operation with good faith and intentions. The mission of the organisation might be beneficial for some groups, but at the same time, it could be unethical or objectionable for other communities.

Hence, legal action may arise even if the premise is bogus. Every lawsuit is entitled to be heard before the court. Therefore, the judicial proceeding could be expensive for the organisation and its directors. In order to protect its interest, an entity must purchase D&O liability insurance.

Protect the Interest of the Directors

Generally, the Directors of a non-profit organization work as volunteers, discharge their services, and look after the operation of the organisation without charging any fee or salary. Yet, they might become a victim of a lawsuit or legal proceedings.

They also agree to serve the organisation by putting their assets at significant risk. Hence, the organisation must indemnify them by availing D&O liability insurance policy.

Recruitment of Directors and Officers

It is a big challenge for a non-profit organisation to build a strong team by recruiting directors and officers to support the organisation. New members with financial resources are essential for the growth and development of the organisation. Therefore, they must be covered under D&O liability insurance in order to escape from legal liabilities.

Reputation of the Organization

It is crucial for an organisation to protect its reputation and grow its goodwill in the market. However, an organisation may face a lawsuit where it is mandated to pay compensation to the victim. Under such circumstances, the organisation is liable to pay the debt and compensation under chapter 13 of Insolvency & Bankruptcy code 2016, within three to five years if the plan is accepted by the court.

A claim made by Shareholders

The collaboration of different trustees and shareholders makes a non-profit organisation. However, due to loss of interest or harmony, they may declare their disassociation from the organisation and demand their share. At that time, the D&O liability insurance can indemnify the top-level management of the organisation by repaying the shareholder's shares.

Conclusion

The D&O liability insurance policy ensures legal compliance for the directors and officers of an organisation. It meets all the costs they may incur in the purview of the D&O liability insurance policy. It further meets the needs of corporate governance and bears all the expenses related to investigation and irregularities in its account.

Written By: PolicyBazaar - Updated: 19 January 2023