While your business may be founded on supporting a social cause, generating goodwill and benefiting society, it still faces risk. Whether it is a non-profit, a charity or a not-for-profit, it is important to consider “Do non-profits need directors insurance in Canada?” when it comes to building your board of directors. Just like any other entity, non-profits do indeed require directors insurance.
In fact, according to IBC, “Organizations with paid or volunteer boards should be aware that directors and officers have very specific duties and obligations. Directors and officers should be given all of the appropriate information that is required to perform their duties effectively.”1 There’s a lot to consider when addressing the question “Do non-profits need directors insurance in Canada?” and we’ve broken down some of the key things you need to know below.
3 Reasons Why Non-Profits Need Directors Insurance In Canada
Conflicts of interest. Directors who are employed elsewhere or own a business might find that their “day” jobs conflict with their “volunteer” organization’s best interests. Directors are privy to confidential and sensitive information and responsible for maintaining privacy. Officers make public statements on behalf of their organizations that need to be appropriately timed and contain appropriate content. Officers should not accept services, gifts or favours that relate to their duties.
Operating policies and procedures. Each one of your board members should have a deep and thorough understanding of your organization’s operations, guidelines and standards. This includes financials (reporting & related policies) as well as privacy and confidentiality of information and materials. Any real or perceived misunderstanding could have a significant impact on your organization’s bottom line.
Human Resources. Just as your charity, not-for-profit or non-profit has guidelines, standards, policies and procedures for paid employees, your volunteers should also be aware of what constitutes unacceptable volunteer performance. Formal job descriptions and documentation of required experience, education and training can help you ensure your directors are well-prepared for their role and associated responsibilities.2
Related Matters: IBC.ca 11 Risk Management Opportunities for Directors & Officers
Non-Profits Need Directors Insurance In Canada – 3 Ways D&O Coverage Can Help
Also commonly referred to as D&O insurance, directors and officers insurance is a must for non-profits – here’s why:
- Looking to attract top talent? Professionals want to be protected from day one. If you are looking for individuals with the ICD professional designation from the Institute of Corporate Directors they’ll expect you have comprehensive non-profits directors insurance in place.
- Worried about stakeholders? Bumps in the road happen. As a not-for-profit, charity or non-profit, your stakeholder group is diverse and your activities are wide-ranging. Should stakeholders bring suit against your directors &/or officers alleging breach of duty, your non-profits directors insurance will be in place to respond.
- Legal expenses. If an allegation triggers the wrongful act and claim definitions, your non-profit directors insurance will respond and cover legal expenses of your board members and employees.
Non-Profit Directors & Officers Coverage
Non-profit organizations, not to mention the directors and officers who run them, face risks every single day. With the threat of litigation looming over them, it can be difficult to do their jobs. Thankfully, non-profit directors & officers coverage can help protect your non-profit’s clients, as well as its officers and directors.
Why non-profit organizations may need D&O insurance more than for-profit corporations?
As noted, there are many reasons why your business, whether not-for-profit, non-profit or charity, needs D&O insurance. These include situations arising out of potential conflicts of interest, unclear operating policies and human resources issues, as well as breach of common law duties or negligence and breach of fiduciary duties.
Having this insurance in place also helps you to attract top talent, protect your stakeholders and provide coverage for any legal expenses that might arise. D&O insurance will cover those who serve as directors for your non-profit or for-profit public or private organizations.
But the main reason that non-profit organizations need D&O insurance is to be sure you are financially protecting your directors from any potential harm, and that includes against their personal assets in the event of a lawsuit. Your directors and operators could be held liable in the event of any allegations of mismanagement of assets, neglect or breach of duty in managing the organization, as well of wrongful dismissal and employee discrimination claims, inaccurate disclosure statement or reporting errors, and any failure to follow laws and regulations of the province or federal governments.
Your directors and officers cannot avoid culpability simply by virtue of the fact they are volunteering for your board of directors. This may mean that your organization needs more insurance coverage than a for-profit company because you have to protect your entire board.
What issues place Directors and Officers at risk of a D&O claim?
Directors and officers of a non-profit can be put at risk when acting on behalf of the organization’s board of directors, whether it is a public, private or non-profit organization. They can be accused of such breaches of duty as mismanaging the non-profit’s funds, conflict of interest, a breach of fiduciary duty or of wrongful termination or discrimination against staff. Most often, these claims take the form of a lawsuit.
While some claims can be frivolous, some accusations can also be serious and have the potential to drastically affect the directors and officers personally, even though they are acting in a volunteer capacity. The question of “Do Non-Profits Need Directors Insurance in Canada?” is clear when you consider the risk your directors and operators are taking with their involvement in your company.
How much does D&O insurance cost?
When you consider the cost of not having Directors and Operators Insurance in place, the cost of coverage is put in perspective. D&O insurance is quite reasonable and will vary based on the size and scope of your organization. For the smallest of businesses and organizations, D&O insurance can be less than $1000/year.
What is non-profit directors & officers coverage ?
Non-profit directors and officers face the threat of litigation, just the same as directors and officers of for-profit companies. Both have fiduciary responsibilities, duty of care, and duty of loyalty. Without the proper coverage, the financial ramifications of a lawsuit can be disastrous, especially for a non-profit. Fighting a lawsuit is both expensive and time-consuming. Even if you eventually prove victorious, the costs of defending yourself could lead to financial ruin. But with non-profit directors and officers coverage, your insurance company will help cover the costs of a lawsuit should one be brought against you. Specifically, your insurance provider can help pay for defence expenses, settlements, and judgments. It can even protect the personal assets of your non-profit’s directors and officers.
Who needs non-profit directors & officers coverage?
All non-profit organizations can benefit from non-profit directors & officers coverage. Examples of claims scenarios in which this type of coverage would come in handy include if a membership organization sued your directors and officers alleging they failed to manage a property lease, if a trade association was sued for anti-trust violations, or if an organization providing housing for underprivileged children was accused of a breach of fiduciary duty by the parents of one of the children. As you can see, there is a wide range of scenarios in which having non-profit directors & officers coverage would benefit you.
ALIGN your organization with non-profit directors & officers coverage
Contact ALIGNED to learn more about non-profit directors & officers insurance coverage or click here for a free quote.