There are over 86,000 registered charities in Canada. Since a vast number of these nonprofits operate on tight budgets, many of them end up spending the bulk of their resources on operations rather than risk management. But even with human rights laws in place, the directors and officers who serve these entities are still at risk of litigation related to the performance of their duties – unless their organization has the right insurance. In fact, without Directors & Operators (D&O) coverage in place, a charity’s representatives could be forced to pay out of their own pockets, or their spouses’ pockets, for the costs of lawsuits aimed at them. D&O Insurance Covers the Essential Risks No Entity Should Overlook Nonprofits are complex organizations, and many allegations of harm are unforeseen. According to industry statistics, 52% of all claims come from past or present employees of nonprofit organizations. The rest originate from customers, members, donors, creditors, government, competitors, and suppliers or contractors. Without proper coverage, these institutions could end up drowning in legal fees. Following are a few examples of the exposures for directors and officers:
- If a board lacks clear policies for hiring and firing, they are at greater risk of allegations of wrongful termination
- Organizations that cannot afford in-house HR or access to legal advice face greater risk of allegations from employees, volunteers, and the public
- Directors, officers, and volunteers might not be aware that they face certain risks and liabilities not protected by the Supreme Court of Canada
Directors and Officers (D&O) liability insurance protects the directors, officers, trustees, employees, volunteers, and board members of private for-profit companies, small businesses, educational institutions, and nonprofit organizations. South Western Insurance Group’s unique D&O policies can protect managers against “wrongful acts” claims as well as pay for legal costs the entity cannot pay, either because indemnification is not permitted, or the corporation is not financially able to cover the costs. These fees include:
- Defense costs
- Financial losses in the event of a breach of management duty
- The costs associated with employment practices liability, including:
- Employee harassment
- Wrongful dismissal
- Fiduciary coverage in the event a company’s pension plans are mismanaged
- The costs associated with:
- Investigations by regulators or criminal prosecutors
- Administrative and criminal proceedings
D&O is not designed to cover everything. For instance, it won’t protect against certain risks attached to fraud, intentionally bad acts, illegal remuneration, property damage and bodily harm, and pre-existing legal actions. The policy also will not cover nonprofits with either significantly high revenues or poor financial health. But for most nonprofits, D&O provides a foundation of protection that helps directors and operators sleep better at night. SWG’s D&O Policy Comes with Added Benefits SWG’s D&O policies come with a host of built-in benefits. Our D&O coverage is unique in its class because it has no caps on policy liability limits for defense costs. In addition, SWG’s custom package includes frill coverages, such as a dedicated excess $1,000,000 limit. This limit kicks in if a claim depletes a policy’s initial liability limit. And unlike the industry standard’s 70/30 hammer clause, SWG provides 100% coverage so no money has to come out of the insured’s pocket. Nonprofit entities, as well as corporations and small businesses, should buy D&O as a baseline, and then purchase additional coverages depending on their needs. The policy provides full entity coverage for the corporation itself by paying on behalf of the corporation the defense costs and damages that it is legally obligated to pay. More details, including a full list of our coverage highlights, are available on the SWG website.
