NonProfit D&O – To Buy or Not To Buy

I got a letter last night from the treasurer of a small nonprofit (edited to protect identities and for clarity):

Hello Scott,

I am the treasurer of the Rangeville Gun Club, we are a small club with about 50 full members and 20 associates members. Our board consists of President, V.P, Secretary, myself, trap chairman and two directors with one member at large.

For the past five years we have held D & O insurance as well as general liability insurance, recently the issue has been brought up if our club truly needs this $1000. per year coverage. I believe we do, however the argument is that our board makes only 90% of the club decisions, all of which are mostly general house keeping operations, our club is not for profit and indemnified by the state of PA. All members and officers are not compensated for any work performed.

With that said, we do make some decisions, recommend policy and practices to the membership, have outside guest and non members participate and shoot at our club.

Our insurance agent, Heather Brown provided me with your name for reference. I have read some of your material but am unable to conclude a clear YES or No for the D & O coverage. I realize that this may be beyond your legal expertise but if you could provide me with any information it would be greatly appreciated.

Bill Jackson
Rangeville Gun Club

My Reply:

Directors are personally liable for the decisions they make. As such, it is their personal assets at risk if there is a lawsuit.

Most corporate bylaws (assuming you are a non-profit corporation) provide for indemnification by the corporation. So, a suit (without insurance) would be paid for by the directors using personal assets. The club would then sell assets to reimburse directors. After the assets are gone, the directors are out of luck.

Many states have volunteer immunity statutes that provide limited protection for non-profit groups. If you qualify for protection under PA law there should be some comfort for your board for issues of simple negligence. Recall that federally imposed liabilities (Americans with Disabilities Act, for example) would be unaffected by a state volunteer immunity statute.

I’d recommend taking this letter to an attorney to get the specifics of the PA law. After that, if your board is comfortable with being without insurance, cancel the insurance.

I cannot imagine serving on a board without D&O coverage. That’s just me though.