Do You Need Insurance if You Sit on a Board?

A great stepping stone in any professional journey is joining a board or committee. Whether you sit on a non-profit board, advisory committee, or serve as an independent director on a corporate board, the advice you give information you oversee, and sometimes the decisions you make, can expose you to risks. Who is responsible for protecting board members from liabilities? The organization or you?

Determining Your Risks:

Risk is always present; however, your risk level will be determined by your decision-making authority.  If you sit on an advisory board, you’re there to provide valuable advice, but not make decisions. This is very different from a governing board member. You may have the authority to advise, decide, and even sign on behalf of the company. The more authority, the more potential personal liability.

When you reach out to discuss your board liabilities, we will most likely ask you the following questions:

• Do you make decisions on behalf of the organization?
• Do you have signing authority?
• Are you referenced in the operating agreement as having decision making authority?
• Do you receive any compensation?

An Organization’s Responsibility:

All businesses with a board or committee should have Directors and Officers (D&O) Insurance. This is designed to financially protect the personal assets of board members, officers, employees, and the business itself, in case they are sued for wrongdoing while managing. This liability insurance can help cover legal fees to indemnify (release) members from personal financial loss.

No one likes to think about getting sued, especially while serving our communities and businesses that we care about. However, risks don’t disappear just because intentions are good. D&O insurance includes coverage for the following risks (just to name a few):

• Misrepresentation or misleading information
• Theft of trade secrets and competitor customers
• Decisions that resulted in or believed to be the cause of loss
• Criminal activity
• Failure to carry out governing duties

When do You Hold Personal Liability?

If the D&O policy has a cap and the limit is reached, the organization itself will be held responsible. This means that the organization will need to fulfill the outstanding legal fees. If the organization is unable to do this, board members would be next in line. This is when you would potentially be exposed.

Big picture, insurance carriers often differentiate coverages and conditions based on the type of board (essentially, the risk level). One helpful coverage is Independent Director’s Liability Insurance(IDL). This is an extra layer of protection that is just for you, not the entire board. It often has broader coverage to include rare events and jumps in at your specified limit. If you doubt that the organization you serve is financially strong enough to cover legal costs and/or if you have growing assets, you would be wise to consider IDL.

Be Your Own Advocate:

Do your due diligence. We recommend the following:

• Make sure the organization has proper D&O insurance and are not underinsured.
• Get a lawyer. It’s never a bad idea to have a lawyer review terms and conditions. As you grow in your career, you will have more assets to protect.

… And remember, when in doubt, give us a call. Insurance is full of intricate details. Whether you are a business owner in need of D&O insurance or a board member concerned about your potential liabilities, we are here to guide you and provide an honest and practical review of your risks.

Do you serve on a non-profit board? Here’s some helpful insight about non-profit insurance.

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