Director and Officer (D&O) insurance, which covers an organization and its directors, officers, and trustees against real or alleged wrongful acts, is an absolute necessity. Read on to learn why. In a word, yes, according to data reported in NPQ, the nonprofit quarterly magazine. This is especially true if your organization is in California.


What does D&O insurance cover?


This insurance is designed to protect organizations against acts that fall in three general categories:

  • Governance liability: claims resulting from general governance decisions;
  • Fiduciary liability: claims resulting from alleged fraud and improper financial oversight; and
  • Employment practices liability: claims resulting from employment-related activities.

According to author Pamela E. Davis, writing in the summer 2015 issue of NPQ, only one percent of claims against an organization arise from governance issues and five percent are related to fiduciary matters. The overwhelming number of claims filed deal with employment practices.  An incredible 94 percent of claims against an organization are employment-related.

Even organizations that work hard to follow employment law are vulnerable to claims, since employment law is very complicated and seems to grow more complex every day.

Why does my organization need D&O insurance?

The risk of sizable claims against organizations exists everywhere, according to data from the Nonprofits Insurance Alliance Group, but California produces the most expensive cases. California cases are about 45 percent more expensive than claims in other states in terms of the cost of defending against the claim and indemnity payments. 

Nearly 65 percent of employment practices claims close with only expense payments, Davis reported, and no indemnity payment at all. These are typically claims that do not go any further than a complaint to the U.S. Equal Employment Opportunity Commission or a state-based organization such as California’s Department of Fair Employment and Housing. They cost an organization an average of $6,500 to handle.

If these small claims are excluded from the data, an average employment practices claim that actually has merit will typically cost an organization between $150,000 and $200,000. “Unless a nonprofit has these types of discretionary funds available to undertake defending and settling such claims, it behooves every nonprofit to offer D&O insurance protection for their organization and their board of directors,” Ms. Davis wrote.

How do I know what to buy?

As with all important decisions, it’s vital to consult with a specialist. Choose an insurance broker who knows what kind of D&O policies are on the market. Peter Green Insurance agents can help you understand the terms and conditions of different policies and can advise you about what would work for your organization. A D&O policy tailored to your company’s needs coupled with a proactive employee practice program is the best approach to reducing employee claims. Visit our website or give us a call at 714.258.2800 or 888.725.7776.