|Volunteering your time and expertise to a nonprofit board could expose your wealth to risks.|
BOSTON ( MainStreet) -- No good deed goes unpunished. That old cliche reflects a danger faced by those who volunteer their time and expertise to nonprofit boards.
Whether it is a charity, civic organization, church or library, serving on a nonprofit board can jeopardize your personal property and assets if lawsuits arise. Legal claims -- citing such matters as wrongful termination, sexual harassment, discrimination or on-site injury -- may affect not just the organization's ledger sheet. Board members who assume they are protected from lawsuits and personal liability could be in for a rude awakening. Some states offer immunity for board members who get no salary or compensation should civil damages arise from actions performed in an official capacity. But even that protection only goes so far and doesn't extend to "intentional conduct, wanton or willful conduct or gross negligence." Interpreting that level of egregiousness isn't always easy, though, and a board member's viewpoint may ultimately not be shared by a plaintiff, judge or jury. Retirement Plans for Nonprofits Get Makeover "Gross negligence" could rear its head as a result of either actions or inaction, and lack of oversight can come back to haunt a board. If a background check slips through the cracks for an employee or volunteer that works with kids, the board may find themselves in deep trouble if a sexual assault takes place. A mix-up that delays getting a contractor to fix a loose handrail is an accident -- and lawsuit -- waiting to happen. Letting a donor have one glass of wine too many at an event sets the stage for a costly accident. With these hazards in mind, many nonprofit organizations buy Directors and Officers Insurance. These policies, and related products, can help insulate board members -- often volunteers tasked with important decisions -- from unexpected grabs at their personal property and money.
As is often the case with legal disputes, even when an organization or one of its overseers believe they did nothing wrong, a judge or jury may see things otherwise. A legal battle, even when vindicated, can be very costly. "Defense costs are another reason why directors and officers want liability coverage," Godziek says. "The defense of claims often costs more than the payouts. There can easily be six figures worth of defense costs." The broad scope of what might be considered "wrongful acts" is another concern, he says. A community member with no direct association with the organization might sue board members individually due to a decision to eliminate a specific program. Think of a hockey player who suffers a traumatic injury during a game whose financially devastated family sues the association and its board members for damages. "That gets back to management issues and is something, potentially, that a D&O policy helps with," Godziek says. "The family may try to claim the organization didn't properly train its people, or that they didn't ensure that there were enough referees on the ice. There are all sorts of things can tie back to mismanagement." "I think there are a lot of reasons why people choose not to volunteer to be on a board that go beyond liability risks," Godziek says. Nevertheless, he thinks an organization that takes steps to protect its board members will be better positioned to attract the talent and expertise it needs. Retirement-Plan Firms See Money in Nonprofits "One of the reasons they might come to someone like us
for a D&O policy is that they get a new board member with a high net worth and they want to make sure they are protected," he says. "A lot of times too, maybe for larger nonprofits, they are looking to attract sophisticated individuals. They want to make sure they have protection for them so that they can attract quality board members." -- Written by Joe Mont in Boston. >To contact the writer of this article, click here: Joe Mont. >To follow the writer on Twitter, go to http://twitter.com/josephmont.