Volunteering on a board? Ask these two questions first!

Volunteering on a board is a generous way to give back to your community, and we applaud those who do.  However, many volunteers do not realize that they are exposing their personal assets as a result of their service.  If you serve on a nonprofit board or committee, take a few minutes to educate yourself on the critical considerations about board volunteerism.

1. How are you exposed?

Fiduciary duty. As a committee or board member, you assume a fiduciary duty for the board.  Fiduciary duty means that you have made decisions in the best interest of the nonprofit organization.  If someone believes you have breached your fiduciary duty, they can sue you for breach of duty. 

Other lawsuits.  More examples of lawsuits that could be filed against volunteer board members include:

• mismanagement of funds

• wrongful termination

• discrimination

• conflict of interest

Remember that even if the lawsuit is frivolous, it will still have to be defended, which can be quite expensive. 

2. How does it effect your homeowners insurance? 

Typically, your home and umbrella insurance policies cover bodily injury or property damage arising from your activities on the volunteer board.  However, most lawsuits are not the result of either bodily injury or property damage.  A typical home insurance policy does not cover the wrongful acts described above. 

How to mitigate your risk   

Directors & Officers Liability Insurance.  Often called D&O insurance, this policy, purchased by the organization, protects board members against potential lawsuits.  Before committing to serve, be sure to ask whether the organization carries D&O insurance. 

D&O Liability limit.  Next, ask what limit of liability is carried by the organization (for example, a $1 million limit).  It’s common for the limit to be shared among all board members (called aggregate).  So, for instance, if the board is sued and there are ten board members, each member would have $100,000 of coverage under the organization’s D&O insurance.  

Personal D&O insurance.  Alternately, you can opt to buy your own personal D&O insurance.  Limits are typically $1-$2 million. Talk to us if you’re interested in learning more. 

Questions to ask

Understanding the exposure caused by volunteering on a board is the first step toward mitigating the risk.  In summary, here are the critical questions to ask the nonprofit organization: 

1. Do you carry D&O insurance?

2. What is the limit? Is it per person or shared by the entire board? 

Armed with this information, you can determine the next steps that will best protect your personal assets.   We encourage you to contact us with any questions about your particular situation.