Nonprofit vs. For-Profit: How Directors and Officers Liability Insurance Differs
Is directors and officers liability insurance really different for nonprofits? Yes, it is — and understanding those differences could save your organization from costly legal exposure.
Often called D&O insurance, this coverage protects leadership from claims alleging mismanagement, breach of duty, or other governance failures. But while both nonprofit and for-profit entities need this protection, their risk profiles — and therefore their insurance needs — are not the same. Board composition, funding sources, and operational mandates all influence how coverage should be structured.
Learn how D&O insurance differs by sector and why choosing the right policy can be mission-critical for any organization.
Why Nonprofits and For-Profits Both Need D&O Coverage
From wrongful termination lawsuits to breach of fiduciary duty, directors and officers at all types of organizations are vulnerable to litigation. Contrary to popular belief, nonprofits are not immune. In fact, volunteer boards may carry greater exposure due to less formal training or documentation practices.
Nonprofit leaders can face claims from:
- Disgruntled former employees alleging improper employment practices — a leading cause of legal claims against nonprofits
- Donors alleging mismanagement of funds
- Regulators scrutinizing tax-exempt status
Meanwhile, for-profit executives face legal action from:
- Shareholders or investors alleging misrepresentation
- Vendors or competitors claiming unfair practices
- Employees suing over workplace decisions
Key Differences in Coverage and Risk
While both sectors need D&O protection, the structure of coverage should reflect the nature of the organization.
- Funding sources: Nonprofits are accountable to donors, granting agencies, and government regulators, while for-profits answer to shareholders and investors. This difference shapes the nature of potential claims.
- Regulatory scrutiny: Nonprofits risk losing their tax-exempt status for compliance failures, such as misuse of funds or failure to file the proper forms — issues that can lead to board-level claims.
- Volunteer boards: Many nonprofit boards include unpaid volunteers, potentially resulting in informal governance practices that increase liability.
- Indemnification differences: For-profits may have more robust internal resources to defend and indemnify directors. Nonprofits often rely solely on their D&O policy for legal protection.
For a real-world look at these exposures, read Moody’s guide on why nonprofit directors and officers face lawsuits.
How To Choose the Right D&O Policy for Your Organization
Not all D&O policies are created equal. A generic, off-the-shelf policy may not provide the right protections for your organization’s specific structure.
Consider:
- Board composition: Are your directors volunteers or paid executives?
- Revenue and funding streams: Do you accept donations, grants, or investor capital?
- Mission type and public visibility: Are you in a high-risk sector, like education or healthcare?
The best approach is to work with a broker who understands your industry and can tailor a D&O solution that aligns with your risks, budget, and governance style.
Protect Your Board & Your Mission
Leadership brings responsibility, and with it, liability. Whether you operate a private business or a charitable foundation, protecting your board with the right D&O insurance is a strategic investment in your organization’s future.
Unsure if your current coverage is sufficient? Moody Insurance Worldwide can help you evaluate your risk profile and structure coverage that fits. Contact us for a consultation.
FAQ About D&O Insurance
Do nonprofits need directors and officers insurance?
Yes. Nonprofit board members can be held personally liable for decisions made in their roles. D&O coverage helps protect them.
What does a D&O policy actually cover?
It typically covers claims of mismanagement, breach of fiduciary duty, misuse of funds, and other governance-related allegations.
Does D&O insurance protect against employee lawsuits?
Yes, in many cases — especially claims related to wrongful termination, harassment, or discrimination.
Is D&O insurance required by law for nonprofits or private companies?
No, but many contracts, grants, or bylaws require it as a condition of doing business or securing funding.
What’s the difference between D&O and professional liability insurance?
D&O insurance protects leadership for governance decisions. Professional liability (errors and omissions) protects the organization from mistakes made in service delivery.
About Moody Insurance Worldwide
We are a specialized, independent insurance agency that provides broad insurance portfolio options for the nonprofit sector. In addition to essential Property, Liability, and Benefits insurance, we have expertise in Professional Liability, Cyber Liability, Director & Officer Liability, and International insurance coverage.