Are directors of a non-profit corporation at risk?

[scott]

Good point Texican. You'll be in my next blog entry - too bad you don't use your real name... I could have given you some Google Juice.

[gregcw]

An additional, and probably the primary reason, for the no-profit to carry D&O insurance is becauses if the director is sued INDIVIDUALLY for his action the G/L will not cover him.

As noted by Santa Rosa Ins Broker there are also areas that can generate a law suit that would also not be covered by the non-profits G/L. Although they do (or may) have some coverage under their Homeowners, the limits may not be adequate.

While the risk of being sued may be minimal, in today's litigeous society I wouldn't want to take my chances. Regarding talking to them about being sued personally, any lawyer can sue anybody for any reason.

[scott]

D&O and GL pay for very different events. D&O policies exclude bodily injury, property damage, and personal injury.

GL covers BI, PD and PI.

HO covers BI, PD and PI.

D&O pays for wrongful acts. There are no overlap in coverage.

A personal umbrella is also no substitute for D&O.

Individuals (employees, directors, and officers) are certainly covered by the GL but only for BI, PD, and PI.

True D&O insurance only covers individuals (no entity coverage). Some policies extend to pick up the entity, usually in regards to employment practices liability coverage which may be included.

No two D&O policies are the same. Detailed analysis is required of any policy proposed as each has different terms, definitions, and exclusions.

D&O underwriters are usually a step or two above standard line underwriters. Many are exceedingly sharp and exceptionally great to deal with.

[texican]

It should be noted that if an indivdual carries a personal umbrella policy that it will extend coverage to volunteer, non-profit activities such as director for a non-profit P.O.A. association/corporation. Unfortunately not all directors will carry a personal umbrella.

[Rob]

The corporate structure protects owners from losing their assets - it does not protect employees - stockholders can only lose their investment. Employees are protected by the assets of the corporation and insurance. If there are no assets and no insurance an employee is without protection from a lawsuit by a 3d party.

Corporate owners can still be sued as individuals for their actions - that's why stockholders are "an insured" on the GL for actions that come out of their position as stockholders. Also, EEs are insureds.

You are driving on company business and you kill a pedestrian. Do you really think that the pedestrian's family can't sue you because you work for a company?

Business Law 101 - contact your attorney - state laws vary in the details - the above, however is based on common law. You are responsible for your actions.

I appreciate you going over all of this. However, I'm still not clear on this because in one sentence you said that "the corporate structure protects owners from losing their assets" and then below that you said "corporate owners can still be sued as individuals". The legal advice I have gotten basically said that being incorporated protected my personal assets in the event of say "screwing up someones insurance". So, why would a director of a board be at risk. Is it because they are not officers and a director would be considerd an "employee" even though not paid?

[scott]

Texican - you are right, the HO and personal umbrella will respond to non-profit activities - for BI and PD. There is no coverage in personal liability coverage for wrongful acts such as discrimination or wrongful discharge.

Rob - I'll try again...

A corporation is a legal entity. You are a legal entity.

You can be sued for your actions. A corporation can be sued for its activities.

If you mess up my insurance I am going to sue you and Im going to sue your agency (the corporation).

Lets assume that Texican is a stockholder of the corporation but not active in the business. The agency has $8m of E&O coverage and $1m in assets - total $9m.

A judge awards me $5m from you and $5m from your agency (corporation).

I get the $8m from the insurance and the judge gives me the $1m in assets of the corporation (lets not quibble over the e&o coverage) The policy pays the agency's share and your share up to the limit of the policy - as you are an insured under the e&o policy.

In total I am $1m short. Im coming after your assets and Im going after Texican's assets as the owner of the corporation.

As a stockholder, Texican's assets are protected by the corporate veil. You are not.

Im going to enjoy living in your house.

[texican]

Scott, the personal umbrella also covers Personal Injury, which covers quite a lot, of course I'm looking at an old policy description.

[Rob]

If you mess up my insurance I am going to sue you and Im going to sue your agency (the corporation).

So why even incorporate?

[scott]

Texican,

Correct - as I said two or three messages ago.

However, BI, PD, and PI are not the same as wrongful acts in a D&O policy - in fact (as I said before) BI, PD and PI are usually excluded by the D&O.

Further, the GL, HO, and Umbrellas exclude anything that is not BI, PD, or PI.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Rob,

Your kidding right? Look at my example above again. The corporation protects the stockholders. If my example above were changed to a partnership or a sole proprietor then the owners could lose everything. Does the corporation protect the employees? Not in the examples we have been talking about.

In addition, corps provide tax advantages, and protection for the owners from creditors.

Due respect Rob. You need to spend some time with a basic business law course. The CPCU law section is pretty good. There are also classes at every community college. Your library has basic texts as well. It wouldn't surprise me if someone has podcast a college class that you can download from iTunes.

[Rob]

Texican,

Correct - as I said two or three messages ago.

However, BI, PD, and PI are not the same as wrongful acts in a D&O policy - in fact (as I said before) BI, PD and PI are usually excluded by the D&O.

Further, the GL, HO, and Umbrellas exclude anything that is not BI, PD, or PI.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Rob,

Your kidding right? Look at my example above again. The corporation protects the stockholders. If my example above were changed to a partnership or a sole proprietor then the owners could lose everything. Does the corporation protect the employees? Not in the examples we have been talking about.

In addition, corps provide tax advantages, and protection for the owners from creditors.

Due respect Rob. You need to spend some time with a basic business law course. The CPCU law section is pretty good. There are also classes at every community college. Your library has basic texts as well. It wouldn't surprise me if someone has podcast a college class that you can download from iTunes.

I think we're going back and forth here because of the difference between stockholders, owners, and employees. Your statement above "if my example above were changed to a partnership or a sole proprietor then the owners could lose everything" infers that as a corporation they wouldn't lose everything and are protected, correct? My main question was with regard to corporate owners (for personal knowledge since my agency is a corporation and I am the sole officer and so I was surprised to hear that my personal assets are at risk).

[scott]

Find a business law book or basic business management text and learn the difference between partnership, sole proprietorship, corporation and LLC.

This is simply must-have knowledge for any business person - especially someone advising people on risk.

Another option is my mentor program...

[Rob]

Find a business law book or basic business management text and learn the difference between partnership, sole proprietorship, corporation and LLC.

This is simply must-have knowledge for any business person - especially someone advising people on risk.

Another option is my mentor program...

I understand the differences between the different entities and that mostly being incorporated protects the personal assets from the losses and liabilities of the business and that the officers can be held liable if they directly and personally injure someone. I'm not a lawyer so that is where I should probably go to find out what is considered "directly and personally injuring someone" while acting on behalf of the corporation.

[pita3333]

I had this witty and snarky reply all ready for Scott...then accidentially deleted it! Most of the snarkyness was related to another topic of spam...

Rob...the key (for this issue) is to read the policy form where it describes "Who is an Insured". That will tell you who is and is not covered. Still have the "what is covered" which is also detailed in the form...I guess what I am really saying is read the form! If you do not have one, any decent underwriter or wholesaler will provide you with a sample. However, realize that in the realm of D&O there is no such thing as standard.

One of the things I was saying in my deleted post was that our industry has a problem with education. There is an article in InsJournal that deals with Misidentification issues creating problems in our industry ( http://www.insurancejournal.com/news/so ... /99446.htm ). Everyone should take a look at that article.

Also taking Scott's lead from that other topic...I have changed my signature to give my full name and some background. (Perhaps I should have read all my past postings to confirm I have not stepped into any (too many) spots of quicksand)

[Rob]

I had this witty and snarky reply all ready for Scott...then accidentially deleted it! Most of the snarkyness was related to another topic of spam...

Rob...the key (for this issue) is to read the policy form where it describes "Who is an Insured". That will tell you who is and is not covered. Still have the "what is covered" which is also detailed in the form...I guess what I am really saying is read the form! If you do not have one, any decent underwriter or wholesaler will provide you with a sample. However, realize that in the realm of D&O there is no such thing as standard.

One of the things I was saying in my deleted post was that our industry has a problem with education. There is an article in InsJournal that deals with Misidentification issues creating problems in our industry ( http://www.insurancejournal.com/news/so ... /99446.htm ). Everyone should take a look at that article.

Also taking Scott's lead from that other topic...I have changed my signature to give my full name and some background. (Perhaps I should have read all my past postings to confirm I have not stepped into any (too many) spots of quicksand)

I appreciate all advice and thoughts but I think some have misinterpreted. For example, I understand the importance of reading the policy form to understand who the insured is if I'm selling a policy.

The reason I asked the original question is because I went to a community association meeting in my neighborhood. There were board openings and I was asked if I wanted to serve. The discussion of GL insurance came up because of their annual meeting and a cert was needed for the City. This is a very small organization, no employees, fifteen board members. Not an HOA. I expressed the concern about lack of D&O coverage as well and the VP said he thinks it is something that should be on the agenda BUT that it is set up as a corporation so they feel the exposure is limited.

So my original question was how to tell someone that being a corp doesn't protect the directors personally and that insurance is a must. In other words, I can tell him that, but I need a source to back it up (a legal source, not insurance agents who sell D&O). So I think the best thing I can do is ask my attorney.

[pita3333]

Rob: Agree...ask QUALIFIED attorney.

Who sponsors the Community Association, where does funding come from? What is the board and Association tasked with and responsible for? Read the GL policy for them...will then really advise if there is coverage.

These answers might also give the ultimate answer. However...the reality is that even if a Corp, the board are not protected for the decisions tehy make as members without a proper D&O policy. If nothing else D&O would provide defense!