Why Nonprofit Directors and Officers Face Lawsuits & How D&O Insurance Helps
Serving on a nonprofit board is often seen as an act of service, but it comes with real legal responsibilities. Today, nonprofit directors and officers can be personally named in lawsuits over decisions they make in good faith, putting their personal assets at risk. Nonprofit directors and officers coverage, or D&O insurance, exists to mitigate this risk. It offers critical protection for both the individuals who serve and the organizations they support.
Unlike general liability, which protects against bodily injury or property damage claims, D&O insurance focuses on alleged wrongful acts tied to leadership decisions — whether financial, operational, or ethical. The stakes are high, and nonprofit boards can often misunderstand or under-prioritize this essential coverage.
Why Do Nonprofit Board Members Get Sued?
Many nonprofit leaders are surprised to learn that good intentions don’t shield them from legal claims. Common reasons directors and officers face lawsuits include:
- Mismanagement of funds: Allegations of poor budgeting, unauthorized spending, or misuse of grant money
- Breach of fiduciary duty: Claims that a board member failed to act in the organization’s best interest
- Employment-related actions: Wrongful termination, harassment, or discrimination lawsuits involving staff or volunteers
- Violation of bylaws or organizational rules: Even technical missteps, like failing to hold proper meetings or maintain compliance, can lead to claims.
Even in cases where a claim has no merit, the cost of defending a lawsuit can be substantial. Without D&O insurance, that burden may fall directly on the individuals involved.
What Does Directors and Officers Insurance for Nonprofits Cover?
D&O insurance may protect nonprofit board members and executives from personal financial loss stemming from claims related to their decisions or actions in a leadership role. This includes:
- Legal defense costs, even if the claim is groundless
- Settlements and judgments, if the organization or individual is found liable
- Coverage for current, former, and future directors and officers, and often senior staff
Importantly, D&O coverage does not protect against criminal acts or intentional wrongdoing — but acts as an essential safeguard for the everyday risks of nonprofit governance.
Protect Your Nonprofit’s Mission With the Right Coverage
When nonprofits are underinsured, they risk more than just financial loss; they potentially jeopardize their reputation, their leadership’s assets, and ultimately, their mission. Nonprofit directors and officers coverage helps preserve all four areas of risk.
The right D&O policy sends a powerful message: that your organization values responsible leadership and is committed to protecting those who step up to serve. It also helps attract qualified board members, giving them confidence that they won’t be personally liable for the tough calls they may have to make.
Moody Insurance Worldwide has deep experience advising nonprofits on how to balance transparency, accountability, and protection. Contact our team to review your current D&O policy or build one tailored to your organization’s needs.
FAQ on Nonprofit Board Liability and D&O Coverage
Can nonprofit board members be held personally liable?
Yes. Directors and officers can be personally named in lawsuits over how they manage funds, make employment decisions, or fulfill their fiduciary duties, even if they’re unpaid volunteers.
What is the difference between general liability and D&O insurance?
General liability covers bodily injury and property damage. D&O insurance protects against claims tied to leadership decisions and governance, such as financial mismanagement or wrongful termination.
Do small nonprofits need directors and officers coverage?
Absolutely. The size of the nonprofit doesn’t shield its board from liability. In fact, smaller organizations often lack the resources to absorb legal costs without insurance.
How much D&O coverage should a nonprofit carry?
It depends on your budget, assets, and exposure. A professional review with Moody Insurance Worldwide can help determine the right limit based on your operations and risk profile.
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, Product Liability, Director & Officer Liability, and International insurance coverage.