Personal Umbrella Liability and Board Service

I am often questioned by a board of directors member who is concerned with their personal liability for their service on the board.

I hear it from board members of non-profit boards and the boards of corporations, alike.

The question goes like this:

“I have a personal umbrella policy that covers me for my actions on this board. Why do we need directors and officers liability?”

A variant is…

“Should I buy a personal umbrella policy in case the directors’ and officers’ insurance is inadequate?

First, a personal umbrella policy is designed to expand your personal liability insurance and your auto liability insurance by adding $1,000,000 (or more) of coverage.

If you have a $500,000 personal auto policy plus a $1,000,000 personal umbrella policy, you have a total of $1,500,000 of liability coverage for an auto accident.

Your home insurance policy provides personal liability. A $1,000,000 umbrella policy adds $1,000,000 of coverage above the basic policy.

Both the auto policy and the personal liability insurance on your home insurance pays for bodily injury and property damage. The umbrella policy also pays for bodily injury and property damage. The lawsuit must come from somebody being injured or property being damaged.

Directors’ and officers’ insurance is purchased to protect board members from lawsuits involving poor decisions:

-an employee sues for wrongful termination.

-an employee sues for harassment.

-a community member sues a non-profit for failure to deliver services.

-a stockholder of a for-profit company sues the directors for poor management that results in loss of investment.

D&O insurance excludes bodily injury and property damage – organizations buy general liability insurance for the exposure of bodily injury and property damage.

So, Mr. Board member, you might need a personal umbrella insurance policy. However, it will not protect you from the same things that directors and officers insurance will cover.