What is not included in your directors and officers insurance (D&O)

Many nonprofits believe its directors and officers (D&O) insurance covers the board members for all matters of wrong doing but, just like most other insurance policies, the key is to look at the exclusions.  Just as in most policies, the excluded causes of loss are either outside the scope of the purpose of insurance or covered by other types of insurance.

D&O insurance will not provide coverage for what many would consider the worst acts of the directors or officers; dishonesty, fraud, criminal or malicious acts committed deliberately.  Insurance is created to transfer risk and not to cover the intentional acts of the insured.  If insurance did cover intentional wrongdoings, the insurance would in a sense encourage immoral acts.  So, drafters of D&O insurance provisions have deemed intentional and deliberate acts of directors (Insureds) as outside of the scope of the purpose of insurance.  Although these deliberate acts may be a surprise to the nonprofit and fellow directors and officers, they are not a surprise to the co-insured who commits the acts and are therefore not covered.  A nonprofit can request a crime policy or fiduciary bond to cover intentional theft of employees including directors, officers, and sometimes unpaid volunteers.

D&O insurance will not provide coverage for bodily or personal injury of a person or physical damage to a third person’s property.  General liability policies provide coverage for bodily or personal injury of a person.  Most general liability policies also cover physical damage to a third person’s property although sometimes at a lesser limit.  This is why, when financially possible, your nonprofit should always be sure have both D&O and general liability insurance.

In today’s climate a good 75% of carriers will automatically include employment practices liability insurance (EPL) with D&O insurance, usually for no to very little additional premium.  EPL insurance covers claims of wrongful termination, discrimination, and harassment.  However, because EPL is included, some nonprofits may assume other employment related coverages may be included such as unemployment insurance, workers compensation insurance, or, more likely, ERISA violation.  You can purchase fiduciary liability insurance or employee benefits liability insurance to cover some ERISA related claims.  You can also purchase separately workers compensation and unemployment insurance.  However, they are not automatically included in the D&O policy just because EPL coverage is included.