Are Board Members Covered by Personal Umbrella Insurance?

Being a member on a board means you have numerous different responsibilities, and you face numerous potential risks. Whether you work on the board of a corporation, a nonprofit, or even a homeowners’ association, it’s important that you understand your role and the potential liabilities that could come with what you do. There are over 86,000 registered organizations in the charity sector in Canada – and considering how many people can serve on a board of directors, that’s a lot of people that could potentially face litigation if they make an error!

One of the best ways to protect yourself as a board member is to have the right insurance. For board members, that insurance may look different than your average commercial insurance, and often a question we get asked is: can personal umbrella insurance cover board members? What is directors and officers (D&O) insurance? What risks does a board member face? In this article, we’ll shed some light on the responsibilities of board members and the importance of (the correct) comprehensive coverage.

Personal Umbrella Insurance and Board Members

In short, personal umbrella insurance doesn’t offer a lot of coverage for board members, especially in their capacity as board members. Personal umbrella insurance may extend the liability protection of your existing policies, as in it might extend the protection already offered by your home insurance policy, but ultimately it won’t apply to business/board liabilities arising from your actions as a member serving on a board of directors for any kind of organization.

There may be some coverage, depending on what kind of organization you serve on and whether you’re paid to do what you do. There are some circumstances where you could have coverage, such as:

Errors or omissions from a member serving on the board of a non-profit.

In some circumstances, working as a board member for a non-profit would mean you have some coverage. You would always need to consult with your insurance broker on this front, however, as policies will always vary. You should always work with an insurance broker if you are unsure of something to do with your policy.

Property damage or personal injury as a non-profit board member who isn’t compensated for their time.

Again, this situation applies only for board members who are working for non-profits, but also if they are not being compensated for their time. This can limit coverage for a lot of board members, as many organizations will pay board members for their time (usually for every meeting that they attend).

Non-board related personal activities.

As you might imagine, personal umbrella insurance can offer protection for board members whenever they engage in personal activities that exist outside of their board responsibilities, such as if they’re involved in a recreational sports league and cause injury to someone else. With each policy, the limits and extent of coverage will always vary.

In short, personal umbrella insurance can offer coverage for board members, but it’s extremely limited in doing so for their duties serving as board members. Ultimately, your best odds of being covered are if you work for a non-profit and you are not compensated for your time. However, policies will always vary. If you serve on a board for an organization, whether you are compensated or not, and whether it’s for-profit or not, we still highly advise considering the addition of directors and officers insurance.

D&O Insurance for Board Members: Protection for Board-Related Liabilities

D&O insurance is the solution when personal umbrella insurance may otherwise fall short. It is specifically designed to address the unique liabilities and risks that could be faced throughout the course of your duties as a director or officer of an organization. Personal umbrella insurance is more for personal liabilities, where D&O offers targeted coverage for issues that could arise from board-related activities. D&O insurance is typically purchased by the board itself, not by the board members.

Some aspects of D&O insurance include:

• Both individual and entity coverage: D&O insurance comes in multiple forms and can be designed to provide coverage for both the individual board members but also the entity itself. Individual coverage protects the organization from indemnification obligations and legal expenses, which can be difficult to recoup from – especially non-profits.
• Enhanced scope of coverage: D&O goes well beyond personal umbrella insurance by offering protection against claims alleging wrongful acts during the course of carrying out board-related responsibilities. It encompasses a much larger range of risks, including regulatory investigations, shareholder lawsuits, financial mismanagement claims, and more.
• Protection against reputational risks: D&O can address reputational risks and offer coverage for public relations expenses, crisis management, and even reputational damage that can arise from negative publicity or claims involving board members.

Board members should recognize the limitations that come with personal umbrella insurance and the need for dedicated D&O coverage. Of course, the responsibility for purchasing D&O is usually on the organization, but the board member should have some understanding of what they’re covered for.

As the head of an organization, obtaining D&O insurance is a prudent step in protecting both the interests of the organization and the board members. We are happy to discuss your coverage with you as experts in insurance who want to help defend your organization’s prosperity, and the peace of your board members. Give us a call, either as the head of an organization or a board member looking for help in navigating their coverage or getting insured.