Unfortunately, in today’s litigious society, anyone—including your foundation—may be the target of a lawsuit. In that event, both the foundation itself and its governing body will need protection. While state and federal law may provide some protection for your board members and volunteers, this immunity will extend to your organization in only a few states. Moreover, these laws often contain no protection for legal expenses, which are often the most expensive component in litigation. Therefore, you should carefully consider what type of insurance your foundation should carry.
General Liability Insurance: All private foundations should consider general liability insurance, which covers personal injury and property damage. Examples of claims that would be covered under your general liability insurance include accidents on the foundation’s premises, fire, theft and accidental loss.
Directors and Officers Liability Insurance: You should also carefully consider purchasing a Directors and Officers Liability Policy (“D&O policy”). A D&O policy will protect your foundation’s officers and directors/trustees against a variety of claims alleging mismanagement within a foundation that are not covered under the foundation’s general liability policy, such as harassment, wrongful termination, employment discrimination, conflicts of interest, libel, slander, breach of contract and violations of the tax laws. Among other provisions, a good D&O policy should contain the following:
- A Duty to Defend provision that offers full defense coverage even if the allegations against your foundation are found to be groundless or false;
- Unlimited coverage for legal expenses (meaning that legal expenses do not count toward the policy’s coverage limit) with such expenses to be paid as incurred;
- Coverage for allegations of anti-trust violations or mismanagement of funds
- Full employment liability coverage;
- Coverage for accusations of harassment by a third party; and
- Protection for assets of a director/trustee held in a spouse’s name.