D&O insurance for a nonprofit: do you need it?

Directors and officers insurance pays legal costs, and often settlements, when the people who run a nonprofit are sued over decisions made in those roles. Depending on the policy, it can cover the organization too. If your nonprofit has employees, the short answer is that you should get a quote. The longer answer depends on what your bylaws promise directors and whether the organization could afford to keep that promise.

This is general information, not legal or insurance advice. A broker who works with nonprofits can price it for you.

What it is for

A legal alert from the D.C. Bar Pro Bono Center makes two points worth knowing. Nonprofits are sued less often than businesses, but it happens, and most suits against nonprofits involve employment: wrongful termination, discrimination or harassment. Claims about financial mismanagement are possible too, and directors and officers can be named.

Indemnification comes first

Your bylaws may say the organization will indemnify its directors and officers. That means it agrees to pay their legal fees, judgments and settlements when they are sued over their service.

The same alert explains why that promise has limits. A small nonprofit may not have the money to pay for a lawsuit. And the law restricts what an organization is allowed to indemnify. The alert says D&O insurance helps with both limits, including cases where the law doesn't allow indemnification.

Read your bylaws for the indemnification clause before you talk to a broker. It tells you what you have promised.

Do you need it?

I'd get a quote if any of these is true:

• You have paid staff
• You sign contracts or leases
• You are recruiting directors who ask about it
• Your bylaws promise indemnification and your reserves couldn't fund a legal defense

An all-volunteer group with a small budget and no staff has less exposure. It still makes a promise in its bylaws, so check what that promise would cost.

Eight questions at renewal

1. Does the policy cover the organization as well as the individuals?
2. Is employment practices liability included, or is it a separate policy?
3. Are volunteers and committee members who aren't directors covered?
4. What is the limit, and do defense costs count against it?
5. What is the deductible or retention?
6. What is excluded? Ask the broker to name the three exclusions most likely to matter to you.
7. If you change insurers, how are claims about earlier years handled?
8. Who has to report a claim, and how fast?

Put the renewal date on the board's annual calendar, and give the board a one-paragraph summary of the answers each year.

What the board should record

When the board reviews coverage, the minutes need one sentence: that the board reviewed the D&O policy and its renewal terms. If there is ever a claim, that sentence shows the board reviewed its coverage. See what belongs in the minutes.

How Karma Compass helps

Karma Compass keeps the board's minutes, votes and documents in one place, so the record of what the board reviewed and decided is easy to produce. On the Pro plan, playbooks run scheduled checks and flag things such as missing conflict-of-interest forms and minutes waiting for approval.

See what each plan includes

Source

• Revisiting Director and Officer Indemnification: a legal alert from the D.C. Bar Pro Bono Center on LawHelp DC, covering indemnification, its limits, and the role of D&O insurance. Read 12 November 2026.