Archive for February, 2012

Non-Profit Organizations and Legal Responsibility of the Directors & Officers

February 3, 2012

Today, I had a lengthy and very interesting discussion with a non-profit organization – a prospective new client – concerning the potential for a lawsuit but, even worse, for legal defense costs related to a frivolous lawsuit and how to prevent (well, not really) any suit.  The real reason for our discussion was because the current Liability Insurance policy does not include coverage for certain events and, additionally, the Board doesn’t have any Directors’ & Officers’ Liability insurance protection.

In this particular case, we discussed non-owned watercraft coverage and non-owned automobile risk concerning the support or sponsoring of social activities of the organization.  What if your group agrees to advertise on its webpage that you offer special charter bus trips to a local casino or that you have an annual fun day on the water in a chartered cruise boat?  You think this is a wonderful social occasion that helps bring people together and, maybe, even increase your group’s membership, right?

Now, being the “party-pooper” that any good risk manager may be, think about the consequences of an injury or death.  Many a good lawyer will love to initiate legal action on behalf of the injured or deceased party and will attempt to name anyone and everyone who may possibly (notice this choice of vocabulary!) be involved – directly or indirectly – in the original event that gave cause to the action; this includes the charter operator, your organization and any and all its individual Board members.

Well, as many a person who is uneducated in matters of law and/or insurance may feel, this person stated that their board had felt there would not be any legal ramifications.  He then went on to ask if a signed waiver, prior to the event being held, would eliminate this risk, when I disagreed.  

Please be aware that a signed waiver, if properly prepared by legal counsel, will reduce but never eliminate the risk.  The reason I state this is that anyone can initiate a lawsuit in our society for almost any reason, today.  It is up to the legal system to determine if a waiver will hold up for defense but you will still be faced with legal costs, in the meantime, until a determination is made.  I have read of many instances where a waiver has been held to be valid by certain courts but also many times where the waiver was considered invalid. 

As a “volunteer” who is offering time, experience, etc. to any non-profit group, do you want to be exposed to this financial problem because you and/or your fellow board members didn’t know, especially when lawyer’s costs can be hundreds of dollars per hour to defend you?!  A non-profit Directors’ & Officers’ Liability Insurance Policy can be bought, in many cases, at very low cost, especially when weighing the risk so why not let me know about your own situation and I’ll be happy to discuss with you?  And, if you decide to use another individual to consult, be aware that there are major differences between any 2 “D&O” policies – they are NOT identical!