Board Member Insurance: What You Need to Know

As a member of a board, it’s important to understand the risks and liabilities that come with the position. Board member insurance, also known as directors and officers (D&O) insurance, is designed to protect board members from lawsuits and financial damages that may arise from their decisions and actions. In this article, we’ll take a closer look at what board member insurance is, why it’s important, how it works, and what to look for when choosing a policy.

What is Board Member Insurance?

Board member insurance is a type of liability insurance that provides coverage for board members in the event of a lawsuit or financial damages resulting from their actions or decisions. The coverage typically includes:

• Defense costs: legal fees and expenses associated with defending a lawsuit
• Settlements or judgments: compensation that may be awarded to the plaintiff in a lawsuit
• Indemnification: reimbursement for costs incurred by the board member as a result of the lawsuit

Board member insurance is typically purchased by the organization or company that the board member serves.

Why is Board Member Insurance Important?

Board member insurance is important because it protects board members from personal financial liability. Without insurance, board members could be held personally responsible for any damages or costs associated with a lawsuit. This can be especially important for non-profit organizations, where board members are typically volunteers and may not have the financial resources to cover large legal expenses.

Additionally, board member insurance can provide peace of mind for board members, allowing them to focus on their duties and responsibilities without the fear of personal financial ruin.

How Does Board Member Insurance Work?

Board member insurance works by providing coverage for board members in the event of a lawsuit or financial damages resulting from their actions or decisions. When a lawsuit is filed, the board member or organization that purchased the policy would need to notify the insurance company and provide details about the lawsuit. The insurance company would then provide legal representation for the board member and cover any associated legal expenses.

If the lawsuit is successful, the insurance company would cover any settlements or judgments awarded to the plaintiff up to the policy limit. The policy may also include indemnification, which would reimburse the board member for any costs incurred as a result of the lawsuit.

What Should You Look for When Choosing a Board Member Insurance Policy?

When choosing a board member insurance policy, there are several factors to consider:

• Coverage limits: the amount of coverage provided by the policy
• Policy exclusions: any types of lawsuits that are not covered by the policy
• Policy deductibles: the amount the policyholder would need to pay before the insurance coverage kicks in
• Insurance company reputation: the reputation of the insurance company providing the coverage
• Cost of the policy: the premium paid for the insurance coverage

It’s important to carefully review the policy terms and conditions to ensure that the coverage meets the needs of the board and the organization.

FAQ: Board Member Insurance

1. Who needs board member insurance?

Board member insurance is typically recommended for any organization or company with a board of directors or advisory board, including non-profit organizations, corporations, and government agencies.

2. What types of lawsuits are typically covered by board member insurance?

Board member insurance typically covers lawsuits related to:

• Breach of fiduciary duty
• Mismanagement of funds or assets
• Negligence or errors in judgement
• Employment practices liability

3. How much coverage do I need?

The amount of coverage needed depends on the size of the organization, the potential risks and liabilities, and the assets of the board members. It’s important to work with an insurance professional to determine the appropriate coverage limit for your organization.

4. Can board member insurance be purchased separately from other insurance policies?

Yes, board member insurance can be purchased as a standalone policy or as part of a broader liability insurance policy.

5. Are all board members covered under the policy?

Typically, all board members are covered under the policy. However, it’s important to review the policy terms and conditions to ensure that all board members are included in the coverage.

Conclusion

Board member insurance is an important consideration for any organization with a board of directors or advisory board. It provides protection for board members in the event of a lawsuit or financial damages resulting from their decisions or actions. When choosing a policy, it’s important to carefully review the coverage limits, policy exclusions, deductibles, insurance company reputation, and cost of the policy. By taking the time to select the right policy, board members can have peace of mind and focus on their duties and responsibilities without the fear of personal financial liability.