TL;DR
Situation
Board service at a nonprofit provider is uncompensated, which leads to an assumption that it is also low risk. The assumption holds for most of what a board does and fails precisely where the consequences are largest.
The resident who was harmed sues the organization, and the general and professional liability program responds. The exposure that reaches a director personally comes from a different direction: a governance decision, a financial decision, a benefit plan decision, or a claim that the board knew about a problem and did not act. None of those are covered by the liability program, and several of them arrive at a moment when the organization is least able to indemnify anyone.
Last updated
01
Personal assets, in the situation where the organization cannot indemnify. Indemnification depends on the organization having the money and on state law and the bylaws permitting it. Insolvency, which is when derivative and creditor claims are most likely, is exactly when indemnification fails.
The corporate negligence theory, which reaches upward. In states recognizing it, a plaintiff can plead that the failure was institutional rather than individual: inadequate staffing policy, inadequate oversight, inadequate response to known problems. Those are board-level allegations even when the claim itself is a resident injury.
Refundable entrance fee obligations on a continuing care campus, which are long-dated promises to residents that appear in disclosure statements and are backed by reserves. A dispute about those obligations is a financial claim against governance, and it is a category the liability program does not touch.
Employee benefit plans. Fiduciary duty under federal benefit plan law attaches to the people who exercise discretion over the plan, and a board that appoints and monitors the committee has taken on a fiduciary role whether or not anyone described it that way.
Regulatory and attorney general interest, which nonprofits attract in ways for-profits do not, because charitable assets carry oversight that commercial assets do not.
02
Assuming the volunteer immunity statute is a shield. Most states have one and most of them are narrower than the name implies. They typically exclude willful or reckless conduct, frequently exclude compensated service, and generally do not prevent a claim from being filed. You can be immune from liability and still need a defense, and the defense is where the money goes.
Assuming the liability program covers the board. It covers the organization for bodily injury arising from operations. A director sued for a governance failure is outside that grant, which is what directors and officers coverage exists for.
Carrying a directors and officers policy with no Side A component. Side A responds where the organization cannot or will not indemnify, which is the only scenario where a director personal assets are genuinely at stake. It is the part of the policy that protects you specifically.
Skipping fiduciary liability because the benefit plan is small. Fiduciary exposure attaches to the discretion, not to the plan size, and the coverage is inexpensive relative to the exposure it addresses.
Not reading the entity versus individual allocation. On a claim naming both the organization and individuals, how defense costs are allocated between them determines what is left for the individuals. Ask how the policy allocates before there is a claim to allocate.
03
Directors and officers liability written for a nonprofit, with Side A coverage and preferably a dedicated Side A limit that cannot be eroded by entity claims.
Fiduciary liability covering the employee benefit plans, separately from the directors and officers policy.
Employment practices liability, which on most nonprofit boards is the single most frequent source of claims naming individuals.
General and professional liability for the organization, structured as it would be for any operator, since a governance claim and a care claim frequently arrive together and the two programs need to coordinate rather than argue.
Crime and employee dishonesty coverage, including resident trust funds where the organization holds them, because a loss of resident funds is both a financial loss and a governance question.
An indemnification provision in the bylaws that is as broad as state law permits, with advancement of defense costs rather than reimbursement after the fact. Advancement matters because defense costs arrive long before any outcome.
04
Ask for the directors and officers policy itself, not the summary. Ask specifically whether there is a Side A component and whether it has a dedicated limit.
Ask whether fiduciary liability is in place for the benefit plans and who is named on it.
Ask what the bylaws say about indemnification and whether they provide for advancement of defense costs. If they provide reimbursement only, that is a bylaw amendment worth making before it matters.
Ask for the annual insurance review to be a board agenda item rather than a management report. A board that has never seen the structure cannot be said to have overseen it.
On a continuing care campus, ask how the refundable entrance fee obligations are reserved and how that reserving is reviewed. This is the exposure most specific to this organization type and the one least likely to be on the agenda.
Ask what happens to your coverage when you leave the board. Directors and officers policies are claims-made, and a former director is exposed to claims arising from decisions made during service but asserted afterwards. The answer should involve the run-off provision, and you should hear it before you resign rather than after.
Follow-up questions
Partially and less than the name suggests. Most states have a statute, most exclude willful or reckless conduct, and most do not prevent a claim from being filed. Immunity from liability is not immunity from being sued, and the defense cost of a claim you ultimately win is still a real cost that has to be paid by someone.
Side A responds when the organization cannot or will not indemnify a director, which is most likely in insolvency or where indemnification is legally barred. That is the only scenario in which your personal assets are genuinely reachable, so Side A is the part of the policy written for you rather than for the organization.
Directors and officers with a Side A component, and fiduciary liability for the benefit plans. Those two address the exposures that reach individuals. Employment practices is the next addition and on most nonprofit boards it is the most frequently used of the three.
Yes, because these policies are claims-made. A claim asserted after you leave, arising from decisions made while you served, is covered only if a policy is in force that reaches back to your period, or if run-off coverage was purchased. Ask about the run-off provision before you resign, while you still have standing to ask.
Go deeper
Other situations
A first acquisition, where the coverage decisions made before closing set the exposure for years and several of them cannot be corrected afterward.
A non-renewal notice has arrived and the renewal date is fixed. What the decision was really about and what can still be influenced in the time remaining.
An operator leasing from a REIT or institutional landlord, where the lease insurance exhibit sets requirements the market may not match and non-compliance is a default.
A third-party manager operating communities for owners, where the management agreement allocates risk that the insurance program often does not follow.
An operator facing an active abuse or assault allegation, where regulatory, criminal and civil processes run simultaneously and the insurance response is only one of them.
Free coverage review
Send the declarations page and whatever documents the situation has produced. A specialist reads the structure against the position you are actually in, within one business day.