They say that when it rains, it pours. This is certainly true with bitter lawsuits. If someone drags your land trust into an ugly lawsuit, they may drag your board members and land trust managers in too. Directors and Officers insurance protects board members and managers when they are making good-faith decisions as fiduciaries of the organization. It is one of the most important, yet least understood, insurance policies available for land trusts.
A well designed Directors & Officers (D&O) policy will include two main coverages that are not normally found in a general liability policy: Directors & Officers and Entity Liability, and Employment Practices Liability. In general, Directors & Officers and Entity Liability helps with claims of errors, omissions, misstatements, neglect or breach of duty by board members. Employment Practices Liability helps with allegations of harassment, discrimination, wrongful termination or retaliation alleged against the nonprofit, board or manager by an employee or third party. D&O policies also include provisions for attorney fees and other defense costs incurred during a lawsuit triggering D&O coverage.
While there are many advantages to having D&O coverage, some nonprofits still wonder whether they truly need it. One of the most common assumptions is that liability is limited to the land trust’s assets. Board members should not assume that organizational bankruptcy will put an end to a legal battle. If the land trust is insolvent, the court can find that the board was negligent in failing to obtain adequate funding and can hold board members personally liable for damages. When this happens, board members’ personal assets could be on the line and individual personal policies often do not respond as expected.
Another common misconception is that small organizations do not have enough assets to be considered a worthwhile target for anyone interested in suing. However, it is important to bear in mind that people sue for many reasons. Whoever is suing you may be more interested in preventing an action or claiming a moral victory than getting money.
Finally, some nonprofits rely on volunteer or charitable immunity statutes to prevent lawsuits, and assume the applicable laws render a Directors and Officers policy unnecessary. Unfortunately, no one law reliably applies to all situations so there can be no true blanket immunity. Immunity statutes do not apply in cases of gross negligence and cannot prevent an aggrieved party from filing suit. Even when immunity laws apply, board members can incur attorney fees and other costs when they defend against the allegations and invoke protection under the applicable law.
Each insurance carrier uses slightly different policy language, definitions, exclusions and conditions that land trusts should review along with pricing when deciding which coverage to choose. Still, it behooves land trusts to consider the coverage when budgets allow. In the event of a lawsuit, the benefits of reliable coverage can vastly outweigh the costs. You don’t have to wander in the rain if you have shelter from the storm.
Meghan A. Mullee is senior associate broker for corporate and commercial risk at Alliant Americas, which offers special group rates to Alliance member land trusts through its Conserv-a-nation insurance program. If you have questions about Conserv-a-nation, please contact Meghan by phone at (703) 547-6292 or email email@example.com