9 Directors and Officers Claim Examples Against Non Profits

http://www.rollinsinsurance.com/insurance-claims-reporting-kit/

In a recent post, 9 reasons to Buy D&O Insurance, I wrote about why organizations should strongly consider buying D&O insurance. I had a lot of feedback and comments and actually that was one of my best read posts. So I thought I would go further and help with understanding of the need by giving some claim examples. There are many more I could cite, but these 9 give a great overview of the types of risks Non Profit Organizations face in their everyday business. Some of these claims can be minimized by having good best practice risk management techniques in place, but sometimes insurance is needed to help with risk transfer if a suit is actually filed.

Here is a list of  9 types of claims from different types of claimants

Donors – Claims resulting from those who make donations to the organizations

The Board of Directors of a church was sued by a number of their donors, alleging misrepresentation of the financial status of the organization. Three members brought separate suits for repayment of the money lent to the church. The first case settled for $240,000 of which $117,000 accounted for expense. The second case settled for $75,000 and incurred $86,000 in defense costs. The last case paid nothing to the claimant, but incurred $13,000 in defense costs. The total loss including defense costs exceeded $530,000.

Third Parties – Third party lawsuits can be filed for various reasons

An organization filed a suit against a foundation and its Board of Directors for improperly infringing upon the claimants intellectual property rights. The claimant filed suit seeking injunctive and monetary relief for the Foundation’s alleged improper use of trademarked property while promoting their fundraiser. The claim settled and the total loss including defense was over $400,000.

Employees – The most common claims made by employees involve discrimination, harassment, wrongful termination, retaliation and hostile work environment.

Discrimination

After 10 years of employment, an employee was fired for poor work performance. This employee brought a discrimination suit against their employer under the Americans with Disabilities Act (ADA). The individual alleged lack of work place accommodation and constructive discharge. The claim was closed for a total loss of over $80,000, including more than $20,000 in defense costs.

Sexual Harassment

An employee alleged one of the directors sexually harassed her by unwanted physical contact, which occurred multiple times. After mediation, the case settled for $30,000. The defense costs exceeded $20,000.

Retaliation

A former employee discovered illegal transactions involving retirement funds. Shortly after reporting the violations, she was terminated by her employer. She filed suit alleging retaliation and wrongful termination. The total loss exceeded $100,000 with the settlement figure over $80,000.

Governmental Agencies – Claims due to violations of the law

The United States Department of Justice brought suit, alleging misappropriation of funds and failure to revert unused money back to the government. The insured received federal grant money and allegedly used leftover grant money to renovate office space instead of return it to the government. The case closed for a total loss of over $60,000, including $21,000 for defense costs.

Volunteers – Volunteers are able to bring suits similar to those made by employees

A volunteer claimed the denial of a full time position was due to her sex, race and pregnant condition. She filed a lawsuit claiming discrimination. The claim is pending further litigation and defense costs paid to date total over $10,000 with an outstanding loss reserve of $65,000.

Members – A claim against the directors to protect the members’ interest.

A law enforcement fraternity began proceedings to have a member removed from the organization. This member then sued the organization in order to have the proceedings halted. While there was no monetary settlement, the defense costs were $15,000.

Beneficiaries/Clients – A claim by the recipient of the organization’s services

A discrimination suit was filed against the Board of Directors when the claimant requested a transfer within the housing complex and was denied. The claimant alleged discrimination based on national origin, religion and sex. The claimant was a resident at a drug and alcohol rehabilitation center. The court dismissed the case due to a lack of evidence. More then $10,000 was paid in defense costs. 

For more information about the impact of claims reporting check out our kit.

 

 

 

 

 

 

 

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12 Hallmarks of Nonprofit Risk Management

I am fortunate to have spent some time with Melanie Lockwood Herman, Executive Director of The Nonprofit Risk Management Center in Leesburg, Virginia. Melanie has an extensive background providing risk management consulting to hundreds of non profit organizations all across the United States. They also run an annual risk management conference which is taking place this year in Philadelphia. Sunday to Tuesday, October 10-12, 2010 at the Loews Hotel in Philadelphia. I will be there and would encourage you to think about sending someone.

One of the projects Melanie has worked on was to develop the 12 Hallmarks of a Risk-Aware Nonprofit.  I found it intriguing and will share it with you along with my comments over the next few months.

Here are the 12 Hallmarks

1. Takes More Risks Than It Avoids
2. Heralds A Risk Management Champion
3. Guided By Reality, In Addition To Scary Headlines
4. Is Bold But Smart
5. Cultivates a ‘Can-Do’ Attitude Among Paid and Volunteer Staff
6. Sees The Whole Iceberg Not Just The Tip
7. Understands That Hindsight Isn’t 20:20, But It’s Better Than A Blindfold
8. Tells It Like It Is
9. Is Transparent With Insurance Partners
10. Values The Journey, Not Just The Destination
11. Engages The Board In Battle
12. Looks At Risk From Everyone’s Perspective

 

Introductory Comments of the 12 Hallmarks by Melanie Lockwood Herman

We can’t know what lies ahead, but we all want to be prepared. Some nonprofits are ready to respond to future events effectively and gracefully, while others stumble and fall. As mission-devoted leaders in our respective nonprofits, we have asked ourselves, “What is it about certain nonprofits that demonstrate the best practices in risk management?”

We have all seen them; we try to emulate them, and we learn by following in their footsteps. Sometimes our shoes fit, other times they do not. But in the process of following the same path, inevitably we journey closer to the gold standard of being a risk-aware nonprofit.

Over the past two years, the Nonprofit Risk Management Center convened and consulted risk management experts from the nonprofit sector to identify the hallmarks of a risk-aware nonprofit organization. With generous grant funding from the Travelers Foundation, over a dozen current and former experienced nonprofit and public entity executives helped identify 12 Hallmarks, along with practical strategies and tools to help turn your organization into one that manifests the hallmarks of a risk-aware nonprofit.

This Hallmarks tool developed by the Nonprofit Risk Management Center has three purposes:

• To inspire thoughtful risk-taking by nonprofit leaders
• To illuminate risk management Hallmarks common in risk-aware nonprofits, and
• To provide specific and practical guidance as well as ‘how-to’ insights for leaders seeking to strengthen risk management practices in their nonprofit organizations.

We invite you to examine these Hallmarks and consider how they can inspire action steps to strengthen your nonprofit’s risk-taking and risk management practices. Each Hallmark is followed by practical suggestions and additional resources to help you get started. After examining these Hallmarks you may decide to choose two, three or all, as goals for your nonprofit in the year(s) ahead. We believe, however, that every nonprofit must satisfy itself that it has adequately addressed each Hallmark, either by taking explicit action or by determining that no action is required for specific reasons. There is no reason why any nonprofit, irrespective of its size or mission, cannot address each of the Hallmarks and decide how best to improve its risk management practices in ways that are compatible with its needs.

We suggest five basic steps for developing sound decisions for your nonprofit in the face of continuing uncertainty:

1. Consider the consequences.
2. Consider the likelihood of those consequences.
3. Consider the odds.
4. Listen to your intuitions and experience.
5. Be wary!

Be as ambitious as suits the culture of your nonprofit. Keep in mind that you will never be alone in your journey to become a risk-aware organization. You have a friend and a resource in the Nonprofit Risk Management Center. Our mission is to help you achieve your risk management goals and we look forward to assisting you. www.nonprofitrisk.org

Please take a moment and leave a comment. Let me know what you think of these 12 hallmarks