Does a nonprofit senior living board need directors and officers coverage?

Four categories recur. Governance and oversight claims alleging the board failed to supervise management on quality of care, which is the claim that follows a serious survey outcome. Financial and entrance fee claims from residents or their estates where a community has liquidity problems and refund obligations are at risk. Employment claims naming directors individually. And regulatory or attorney general inquiries into a charitable organization.

The common feature is that none of these is a professional liability claim. The professional policy responds to care rendered to a resident. These are claims about how the organization was governed.

Most states have statutes limiting the personal liability of uncompensated nonprofit directors, and there is a federal volunteer protection statute as well. They are real but narrow: they generally do not protect against willful or grossly negligent conduct, they usually do not apply to employment claims, and they frequently do not apply where the organization has failed to maintain insurance.

More importantly, immunity is a defense, not a defense fund. A director protected by immunity still has to hire a lawyer to establish it. Directors and officers coverage pays for that lawyer from the first day, which is the practical value of the product.

Entity coverage as well as individual coverage, so the organization itself is protected rather than only the directors. Employment practices either included or clearly coordinated with a separate policy so there is no gap between them. Coverage for regulatory investigation costs including responses to a state attorney general or charity regulator.

Then read the exclusions that matter in this sector: the bodily injury exclusion, which should carve back defense costs for oversight claims arising from care, and the professional services exclusion, which should not be so broad that it removes governance claims connected to quality of care. Those two exclusions together are what decide whether the policy responds to the claim a board most fears.

Also confirm severability, so one bad actor does not void coverage for the rest of the board, and confirm what happens on a change of control, since a merger triggers a run-off decision.

A continuing care community holding entrance fees carries an obligation that looks financial and behaves fiduciary. Claims here allege the board permitted the organization to accept entrance fees while knowing refund obligations could not be met, and they are pled against directors personally.

If your community holds entrance fees, size the limit against the refund obligation rather than against revenue, and confirm the policy does not exclude claims arising from the entrance fee contract, which some forms do by way of a contractual liability exclusion.