Serving on Non-Profit Boards: Are You Bolted or Nailed?
August 14, 2009By Dave Polstra, CPA, CFP®, CIMA®
I’ll never forget when it happened. The year was 1995 and we had been in our new home for a year. The recent tragedy had become the talk of Atlanta. I called my builder and asked, “When your work crew attached the back deck to the main structure of our house, was it bolted or nailed?” “Bolted,” he replied. Let me remind you of the story: On April 8, 1995, a nationally-known charity was holding a board meeting in Atlanta. One of the board members hosted an evening barbeque at their upscale home and during the event, more than 100 guests crowded onto a wooden deck attached to the house. The deck collapsed, tumbling fifteen feet onto a concrete patio below. Several guests were injured and required hospitalization. Was the board member personally liable? Yes, he was. I share this story to remind our readers that most members of non-profit boards are unaware of the potential for personal liability when events like the one above, albeit unlikely, occur. Not only can board members be held personally liable when injuries occur, they can also be held personally liable for the actions of the organizations they serve.
So, what should you do before you agree to serve on the board of a non-profit? First and foremost, talk to your property/casualty agent to make sure you have adequate personal liability coverage. Then, ask the nonprofit for a summary of their general liability coverage. When a person becomes a board member of a nonprofit organization, they assume a level of responsibility for the organization and expose themselves to claims in case the organization is not managed or run in a proper way. This means that board members can also be held personally liable for claims like discrimination, failure to pay payroll taxes, or contested terminations. This is where Directors and Officers (“D&O”) coverage comes into play. D&O coverage protects board members from claims pertaining to non-bodily injuries. Most (but not all) umbrella liability policies also provide D&O coverage for the policyholder when they serve on nonprofit boards. This coverage would be in addition to any coverage the nonprofit provides its board members. According to Craig Perry, Vice President of Thomas Rutherfoord, Inc., a national property/casualty insurance firm, “It is not enough to ask if the non-profit has D&O coverage. People need to find out policy limits and major exclusions.” Joe Hamilton, Executive Vice President of Wachovia Insurance Services adds, “I would strongly consider not serving on a non-profit board unless the organization has D&O insurance.”
Many of our clients give back to their communities by serving on nonprofit boards. We encourage involvement in nonprofits, but also want you to be protected from the unexpected. The bottom line: make sure your liability coverage is “bolted;” otherwise, you may get “nailed” unexpectedly from a claim against the nonprofit organization that you serve.
