Exempt - Winter 2008 - (Page 15)

practices. The alliance uses employment managers help nonproﬁts by giving advice on practices. “That isn’t an answer to avoid having the insurance,” Davis said. “You can’t wait till something happens or a volunteer ﬁles a complaint.” Insurance can’t be thought of as other costs where planners can cut back on expenses. “Even claims that don’t have merit have to be defended with a cost,” she said. “We could see someone having a claim whether the organization did wrong or not.” Rather than think about whether you are paying too much, think about whether you are gaining the quality of assistance from your carrier. “Some say you’ll get assistance if you have trouble with employment practices,” she said. “How deep is that assistance -- just two hours a year or on a steady basis?” No standard forms exist for D&O, according to Herman. “A recent softening of the market has the carriers looking for ways to be creative,” she said. “They’ve unveiled new policies where the buyer should make sure they have the latest form.” New coverage of enhancements tend to be addons. “They might offer additional coverage for the cost of public relations help to restore the image after a legal action,” she said. “Such an exposure is never covered by insurance.” In another case, coverage might be offered for the spouse of a board member. Some small organizations misunderstand the D&O. They think that it helps when someone is hurt, although D&O doesn’t cover bodily injury. “It’s necessary to know how a covered loss is deﬁned,” she said. “Understanding the structure is essential -- you spend thousands so you should know the details.” E Tom Pope, a New York City-based journalist, writes about management issues. Worse Case Scenario A price tag of $15 million in defense costs for a directors and ofﬁcers (D&O) case just might be the worse case scenario. The case Trustees of Princeton University v. National Union Fire Insurance Company involved a suit by Princeton against American International Group (AIG) and AIG’s refusal to cover legal fees under a D&O indemniﬁcation policy. In the case, the founders of the Robertson Foundation aimed to support the graduate program of the Woodrow Wilson School of Public and International Affairs. In 2002, the family-appointed trustees balked at an investment strategy and accused the university-appointed trustees of breaching their ﬁduciary duties. The claim alleged a misappropriated $100 million in foundation assets used by Princeton University for general interests. The D&O case offered some ideas for nonproﬁts: • Timely notiﬁcation of the insurance carrier of any potential claims is important. Princeton University notiﬁed its insurance carrier early in the process and before the suit was ﬁled. If Princeton had been late, AIG could have contested coverage because of late notiﬁcation. • The speciﬁc coverage was listed as $5 million per year, so that if the defense costs against requests for injunctive or equitable relief exceeded that ﬁgure, the excess would go uncovered. • Claims for monetary damages and associated defense costs were not subject to this $5 million annual cap. • In a lawsuit, it is often difﬁcult to target costs, so determining which claim is responsible can be complex. “The Princeton case of $15 million could be that worst case scenario in D&0,” said Melanie Lockwood Herman, executive director of the Nonproﬁt Risk Management Center in Leesburg, Va. “The difference between a carrier and insured is that the carrier wants to cover claims that are least likely to happen, while the insured wants to cover those cases that could be the worse case.” Winter 2008 | Exempt | 15

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Exempt - Winter 2008

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