insurance, insurance policySitting on the board of any organization, whether a non-profit or a for-profit, can be a very rewarding experience. Unfortunately, if the organization does not have the proper insurance policy in place, doing so can also put your own assets at risk.

As a director or officer, you have a responsibility to properly run and manage a business, whether you’re on the board of your 30-unit condo complex or a publicly traded company. If investors believe you’re not properly managing the business, you could be sued—individually—for damages.

How can I protect myself?

Before you run for office or agree to sit on a board, be sure the company has a directors and officers (D&O) liability policy in place, in addition to general liability and all other insurance policies that are normal and customary for the business. A D&O policy is sometimes called a management liability policy because it protects you from managing (or mismanaging) the business.

The terms and conditions of D&O insurance policies vary greatly from policy to policy, and comprehensive coverage can often have exclusions buried in the policy that only an experienced insurance agent can detect. The more comprehensive the coverage, the higher the premium, which means that some companies may forgo important coverage to save on price.

What does a D&O policy do and how much does one cost?

A D&O policy is designed to help fill the coverage gaps of the general liability coverage. While the general liability policy is designed to cover the business in the event bodily injury or property damage occurs, the D&O policy provides protection to directors and officers from damages relating to lawsuits for, and allegations of, wrongful conduct.

The cost of a D&O policy varies based on your state, the size of the organization, and the value of the personal assets you want to protect.

What should I look for in a D&O policy?

Review the D&O policy with your insurance representative before making any decisions about sitting on the board. If the company doesn’t have adequate coverage, you may change your mind about accepting the position.

Ask your insurance agent the following questions:

  • Is the policy is with an “A” rated company? To be sure your insurance company and policy will be there for you when and if you need help, ask about its rating with A.M. Best—the rating organization that services the insurance industry.
  • Does the policy include employment practices liability (EPL) coverage? This coverage protects the board against any discrimination lawsuits brought by current employees or by third-party candidates who interview for employment with the firm on whose board you sit.
  • Are the limits of coverage high enough? Be sure you’re comfortable with the policy’s coverage limits, which can range depending on the policy.
  • Is there a failure to maintain insurance (FTMI) exclusion? If so, you could be held responsible if the company does not purchase or maintain the proper types of insurance associated with the business.

What if the organization doesn’t have a D&O policy?

If the organization has no D&O policy, or if you are not happy with the amount of coverage, but you still want to sit on the board, you can consider purchasing a personal D&O policy for yourself. It will protect you in the event the board lets its policy lapse, and it will help assure that the coverage limits are up to your standards.

If you already sit on a board of directors, it is not too late to request a copy of the D&O policy and have your insurance representative review it. Doing so may help you protect your assets in the event of a lawsuit.

Heidi Petschauer Fox graduated from St. John’s University in Queens, N.Y., in 1983 with a B.S. in management. She joined her late father’s firm, Petschauer Insurance, in 1982, became principal in 1995, and now shares ownership with her partner and cousin, Erwin Petschauer. She received her Certified Insurance Counselor (CIC) designation in 1997. She currently facilitates the professional and creative development of the entire Petschauer team and manages the personal lines and social media departments.