Do Non-profit Organizations Need D&O Liability Policy?

It is merely a misconception that non-profit organisation does not require to subscribe D&O liability policy. The manufacturer purchases the liability policy in order to safeguard his business against the risk of lawsuits or legal claims. Similarly, a company or profitable company purchases a liability policy in order to protect its directors against their decision-making. Hence, in order to safeguard the interest of top-level management, an individual needs D&O cover for non-profit organizations.

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D&O Liability Insurance

The D&O insurance policy protects the directors and officers of a company against a lawsuit or claim made by the plaintiff. The top-level management of a firm takes some crucial decisions for the growth and development of the company.

However, their decision might not be suitable or against the notion of some associated individuals of a company. Therefore, the directors are vulnerable to lawsuits. Under such circumstances, the D&O liability policy protects the interest of directors by offering immediate relief.

It appoints an attorney in order to argue the case and file the replies on their behalf. Further, it grants damage if the judgment or pronouncement of the court is held against the directors.

D&O Cover for Non-profit Organisation

Like every organisation, the directors and officers also need a D&O policy whether or not they work for a non-profit company.

The followings are the reason why a non-profit organisation needs a D&O liability policy.

  1. Interest of Entity

    A non-profit organisation may conduct its operation in good faith or for a suitable cause. The intention of the officers may be notable or praiseworthy. However, it may affect other communities. For example, a company may take an initiative to grant shelter to a certain group of refugees.

    However, the other community may interpret it as a conspiracy of the NGO. Therefore, the organisation, along with its director may be sued under a court of law. If the case is bogus, it is still entitled to be heard by the court. So, it may sabotage a company working for a good cause. Hence, it must subscribe to the D&O cover for a non-profit company.

  2. Interest of Directors

    Generally, the directors do not work for compensation. They discharge their duties and services with reasonable motive and intention. In short, they work as a volunteer for company. However, they may become captivated by a lawsuit or legal proceeding.

    The directors serve the organisation by placing their personal assets at risk. Therefore, it is the duty of the organisation to buy a liability policy for the directors and officers.

  3. Recruitment Process

    The non-profit organisation striving for a good cause requires building a strong team. Organizing a team needs a director and officer on board. However, an individual shall become a member of an NGO after interpreting the risk associated with the organisation. People verify if the organisation has subscribed to the D&O liability policy to grant protection to the new directors. Hence, the NGO must subscribe to the D&O cover for the non-profit organisation.

  4. Claims against NGO

    The shareholder, trustees and investors of an NGO might not be satisfied with the visions and services it administers. Therefore, they may declare their disassociation from the organisation. In addition, they may also demand the shares they have invested in for the growth of the company. Hence, in order to escape such liabilities, the NGO must purchase D&O cover for a non-profit company.

Conclusion

D&O cover for non-organisation is imperative as it may be a victim of an investigation by the regulators. In the past few years, the central government ceased several NGOs by investing in the organisation. Further, the company may also receive claims from the shareholder. It may also be required to deal with lawsuits arising from its competence. Hence, it must pursue a D&O insurance policy.

Written By: PolicyBazaar - Updated: 01 April 2023

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