Should a Church Carry D&O Insurance?

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Insurance is often a big budget item for any organization. Keeping premium costs down is important, but sometimes a policy is necessary to manage risks, whether from physical damage and injuries or from financial losses. For-profit businesses often carry directors and officers insurance, or D&O insurance, to protect the personal assets of members of their leadership teams from lawsuits. Does a church need D&O insurance?

What does D&O insurance cover?

D&O insurance specifically protects directors and officers of an organization from certain kinds of personal liability arising from their official roles. A typical general liability policy only covers the church and its leadership in the event of things like a personal injury or property damage. It often does not capture the specialized forms of liability that can arise for individuals in leadership positions.

A key benefit of D&O insurance is that it will cover legal fees for a director or officer who is sued for the types of claim that are covered. Examples of issues that could trigger coverage under a D&O insurance policy include:

  • Failure to provide adequate financial oversight.
  • Use of donor funds in a manner inconsistent with donor wishes.
  • Entering into transactions that risk the church’s tax-exempt status

But does a church need it?

California law limits the personal liability of directors and officers of religious and secular nonprofit organizations under many circumstances. In theory, this should prevent many lawsuits against a church’s director or officer from ever being filed. But in our litigious society, some people view lawsuits as tactical instruments meant to squeeze quick settlements out of people who lack resources to defend themselves. Even if a lawsuit has no merit, it can cost a tidy sum to defend.

As a church grows in size the potential liability of its directors and officers grows with it. Sophisticated individuals who understand the legal risks may want the church to carry D&O insurance as a condition of their service. Even if an individual is willing to serve without this coverage, it may be desirable for the church to carry it anyway to protect its key personnel from undue hardship.

The Church Law Center of California advises nonprofits on governance and risk management issues. If your church is weighing the merits of D&O insurance or other matters relating to leadership and risk, give us a call at (949) 892-1221 or reach out through our contact page.

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