Private & Non-Profit Company Directors and Officers Insurance

Brian Weiss
Published Date:
Feb 1, 2015

Although directors and officers of private and not-for-profit companies face similar liability exposures as do their publicly traded corporation counterparts, they often view their risks as being of a much lesser degree. Therefore, it is common for these companies not to have adequate directors and officers (“D&O”) insurance.

Over the past 10 years, however, D&O claims track almost evenly between the private/non-profit and public corporations. To this point, D&O claims with respect to private/non-profit corporations are often in the hundreds of thousands of dollars, and, when litigation defense costs are factored in, the liability can escalate into the millions. For this reason, it is crucial for your private/non-profit company’s decision makers to be aware of the risks and purchase the right type of insurance.

For instance, your private or not-for-profit company may have General Liability insurance and believe it is adequate. But a typical General Liability policy usually excludes coverage for the financial consequences of mismanagement by the company’s directors and officers. Also, such insurance does not typically include coverage for employment practices liability, fiduciary liability or cyber risks – all insurance products that are either normally included with D&O insurance, or purchased as an add-on.

This article will provide a quick summary of D&O insurance policies as well as their related coverages. However, this is just a summary so it is recommended that you consult with a D&O Insurance broker specialist regarding any of these coverages.

Claimants who may file lawsuits potentially covered by D&O insurance include shareholders, creditors, investors, competitors, or customers. The lawsuits may allege breach of fiduciary duty, inadequate disclosures, unfair competition or fraud among many other potential allegations. You may also face regulatory proceedings from the government. Recently, we have seen an uptick in investigations and proceedings instituted by the SEC and Department of Justice. Additionally, we have seen more activity related to whistleblower claims and the Foreign Corrupt Practices Act.

As a quick background of the mechanics of your D&O insurance policy, there are three coverage parts. Part A covers directors and officers directly as well as the personal assets of the company’s executives if the company does not provide indemnification. Part B covers the company for indemnification of its directors and officers. Part C covers claims against the company. Both Coverages B and C are subject to a self-insured retention, while Part A coverage begins with the first dollar of loss.

Your policy may have exclusions for claims of disgorgement, personal profit, bodily injury, property damage as well as claims made by other insureds. On the other hand, those exclusions may have conditions or carve-backs and are often negotiable to a degree. It is important to work with your broker to obtain the most favorable terms.

The most common claims for a private/non-profit company are employment practices liability claims (“EPL”). They are generally claims by employees or former employees alleging discrimination, harassment, wrongful termination, failure to hire or retaliation. Recently, we have seen an uptick in allegations of retaliation and for punishing whistleblowers.

Sometimes companies believe EPL insurance is unnecessary because they do not discriminate or treat their employees poorly. However, the cost of defending even an unmeritorious EPL claim can be significant and could easily reach an amount north of $100,000 even before going to trial.

Thus, an EPL policy will cover the cost of a defense of these employment claims with the resources of the insurance company and their preferred counsel. If you do not experience these claims often, the availability of such resources when needed can be very helpful. On the other hand, these policies typically exclude severance, bodily injury, ERISA and breach of contract claims.

Although coverage for ERISA claims are not included in your EPL coverage, they are generally included in Fiduciary coverage, which may be part of your D&O policy, or, if not, it can be purchased as an add-on. Such coverage will protect you from allegations pertaining to your companies’ responsibilities in the administration or handling of employee benefit plans.

Lately, occurrences of cyber breaches have been in the news - a new one practically every week reported in the newspapers. These attacks affect a variety of businesses, from retailers to banks to everything in between. Although your D&O policy may include coverage for some types of cyber breach third party claims, for full coverage and most importantly first party coverage, it is recommended you also purchase a cyber insurance policy as well. The policy will cover the cost of a cyber breach team to be retained at the time of the breach to perhaps mitigate the size of any loss and the potential for a large third party claim.

For nonprofit companies in New York, the Nonprofit Revitalization Act of 2013 provides several new guidelines to be aware of, including in summary:

A – Audits required for nonprofits with over $500,000 in revenue;
B – Individuals may not vote on their own compensation;
C – Companies must perform a strict review of related party transactions;
D – Mandates a whistleblower policy for nonprofits with over $1 million in revenue or more than 20 employees; and
E – Must enact a conflict of interest policy.

As indicated by the above non-exhaustive list of new guidelines, the Nonprofit Revitalization Act of 2013, creates duties to your company that may require a change in policy to be in compliance. It is recommended to consult with counsel to make sure you are in compliance.

Brian WeissBrian Weiss is a claims advocate for the FINEX Practice of Willis. Mr. Weiss provides claim advocacy for clientele in the areas of directors and officers liability, financial institutions professional liability, employment practices liability, fiduciary liability, fidelity and transactional insurance policies. Prior to his employment in the insurance industry, Brian practiced law as an insurance coverage attorney. He can be reached at

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